Knowing Your Options For A Home Equity Line Of Credit (HELOC)

Home equity line of credit

When it comes to understanding how to consolidate your debt, knowing all of your options is a good start. Many Canadians struggle with debt, be it credit card, car payments, student loans, and especially mortgage payments. We understand how difficult it can be to manage all of this all while taking care of yourself and your family.

Restructuring

credit debt

The first step in understanding how to get back on track by organizing your life to make your debt payments manageable. For this a mortgage advisor is the best place to start. If the option is right for you, they can help you obtain your home equity in order to help pay off your debt. They can also help you restructure your spending habits to make sure you can stay out of debt and make your home equity line of credit (HELOC) count.

Your HELOC will still need to be repaid; however, when you are only paying one payment, with one interest rate, it can drastically reduce stress. Causing things to be less overwhelming, not having multiple bill payments with various interest rates coming in.

What is a Home Equity Line of Credit (HELOC)?

  • Maximum loan-to-value (LTV) = 65% of appraised value
  • It is a line of credit secured by way of a collateral mortgage on the title to your home/property. The interest rate is set by the Prime Rate and is much lower than a personal unsecured line of credit. Maximum Loan-to-Value (LTV) is 65% of appraised value.

Determining Your Equity

Your home Equity is based on the difference between your home’s value and the unpaid balance of your existing mortgage. Home equity has the potential to raise in worth by one of two ways, either you pay your mortgage down and the difference grows, or the value of your home increases.

A stand-alone HELOC has a maximum Loan-to-Value (LTV) of 65%, and a mortgage has a maximum LTV of 80%. You can have a mortgage and HELOC under one charge on a title, going to an LTV of 80%. Just remember, you will need to subtract the amount still owing on your mortgage!

How to Qualify For a Home Equity Line Of Credit

HELOC key

According to the Financial Consumer Agency of Canada, in order to qualify for a home equity line of credit you will require:

A minimum down payment or equity of 35% if you want to use a stand-alone home equity line of credit as a substitute for your mortgage.

Lender Requirements

Your lender will have requirements before you can be approved for a home equity line of credit which include:

  •  A Satisfactory Credit Score
  • Proof Of An Appropriate & Stable Income
  • A Suitable Level Of Debt Compared To Your Income

In order to qualify for a Home Equity Line Of Credit, you will need to pass a stress test. This is to ensure that you can afford payments at a higher rate than the rate of your contact to avoid problems if rates increase. The lender wants to be sure you can pay it off.

Rates

HELOC’s are not necessarily subject to the same rate fluctuations as mortgages. HELOC’s are always set with a prime, which means that they fluctuate, but your mortgage can either have a fixed or variable rate.

Potential Benefits Of A HELOC:

Mortgage relief

One of the main benefits of debt consolidation is that it will buy you time and emotional release from current debt pressures. Studies have shown that the stress of too much debt can impact more than your mental health, and it can also be affecting other parts of your life.

HELOC Requirements:

  • Minimum Payments Required = Interest Only. Can Be Paid In Full At Anytime With No Penalties.
  • Readvanceable – The HELOC Can Be Paid In Full & Used Again At
  • Anytime As Needed- Maximum Flexibility
  • Low Interest Rate

A HELOC only has a minimum payment requirement of the interest and will allow you to address your budget and free up your cash flow before making principal payments. By refinancing and being serious about making and keeping to your budget, you can achieve a debt-free lifestyle! While refinancing can extend your mortgage’s life, it can get you onto the path of being debt-free a lot sooner.

home equity, money in your pocket

For more information on a home equity line of credit (HELOC), talk to a mortgage professional. They can help way your options to determine the best course of action for getting your bills and various payments under control with a HELOC. Here at The Mortgage Group, we are here to help you with all of your mortgage questions and concerns. Including, those regarding home equity. Contact us today to better understand how we can help you obtain your home equity line of credit.

Is A Mortgage Deferral Right For You?

mortgage deferral

Mortgage Deferrals During COVID-19

With the recent federal business closure directives and layoffs, many people are looking for ways to adjust their budgets to decreased income the closures have caused.

The federal government CERB program and the EI coverage may help. You can check their website to see what funding will help your family in this trying time.

If, after crunching the numbers, you still come up short, what actions can help you get by until life returns to normal?

Financial consultants are suggesting, if it is possible, you should still make your payments. Use savings and available credit lines before deferring your mortgage.

Many banks are deferring credit card payments and interest on credit cards and credit lines or allowing clients just to pay interest payments. The deferred payments will still have to be paid. Be aware if you defer the interest, you might need to pay all the deferred interest with your first payment when the deferral ends.

Mortgage Deferral Considerations

Mortgage expenses

It is crucial to get all of the facts from your lender before you agree to a mortgage deferral.

If you can’t afford to pay your mortgage payment, lenders are offering people the ability to defer their mortgage payments due to the current financial conditions.

What Is A Mortgage Deferral?

The team at The Mortgage Group Calgary explains that mortgage deferrals allow you to take a break from your scheduled principal and interest payments for an agreed-upon time. The interest continues to accrue and will become part of your mortgage balance.

First Steps

If you have been affected by COVID-19 and can’t make your mortgage payments, the first step is to contact your mortgage provider to discuss options. Most institutions have an email address as well as an online deferral request, as the phone lines have been hectic.

You must take a copy of that first email contact explaining you need assistance because of the COVID-19 crisis. In the email, include the mortgage ID information and the reason you cannot pay. For example, if you were laid off from work, fell ill with the virus and are in isolation, you are looking after children, or your business was forced to close. Then if the bank does not get back immediately, you have a record to the date of your notice.

Banks and Financial Relief

financial support

Most institutions will not be reporting to the credit bureau(s) at this time and understand that this is a challenging time for their customers. They will probably waive or refund the non-sufficient funds [NSF] fee for missed or stopped payments at this time. Meanwhile they are also taking time to assist customers individually.

“Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and three other large lenders announced plans on March 17 to provide financial relief to Canadians impacted by the economic consequences of COVID-19.  Mortgage deferrals are among the measures introduced.

Customers in good standing who have been impacted by the pandemic can apply, with deferrals available for an indefinite period and no deadline to apply,” said Mathieu Labreche, a spokesman for the Canadian Bankers Association, stated in a Bloomberg news interview.

Term Choices

So discussing the arrangements for the deferral, ask how the payments and insurance fees. Be sure to get the terms in writing.

Some choices of terms to consider are:

  • To make your monthly mortgage & interest payments on a different timeline
  • Pay just the interest & move the mortgage payment to the end of the policy. Add them to the amount of the overall mortgage and extend the mortgage term.
  • Defer both, where the payments and insurance attach to the back of the mortgage. This again increases the amount of the mortgage and interest you will pay & extends the time it takes to pay it off.
  • Some banks will average the deferred interest increases into the mortgage payments over the term of the mortgage when the deferral ends.

Case By Case

savings-expenses

Rules for each bank are changing as the crisis lingers. Most mortgage companies are offering deferrals based on a case by case basis.

Labreche said that banks have processed over 213,000 requests in the last week, so they are moving quickly through applications. Still, you may need patience and persistence with the process.

There is stress on both sides of the phone line, so ask what suggestions they have to help your situation, or schedule a phone appointment to discuss your options. Sometimes it is frustrating because the agents are unaware of new developments offered by the bank. Some banks will refuse a deferral due to delinquent payments in the past and others are asking for a full credit check.

Monitor Your Credit Rating

credit report

Your credit rating might be affected, so it is good to check to see if it has gone down. Credit rating notices are a computerized process. A deferral might automatically flag your credit rating. Equifax wrote about the impact on credit ratings and the COV19 crisis. If your score goes down, the credit bureaus suggest that it is due to COV19. It will help you in future banking/lending discussions.

Working Together

teamwork financial support

It is important to note that everyone is struggling with recent events. Still, Canadians are good at supporting one another in crisis. Seek out the community and charitable resources in this time of need if you need them. Keep in contact with friends and family.

Alberta Health Services has phone resources and online material on its website for non-financial issues.

Talking to a money manager might give you other financial survival information. The Credit Counselling Society offers some excellent emergency budget management tips and online workshops.

The Mortgage Group Calgary team is an essential service and are adhering to social distancing requirements for the protection of their clients and staff. We cannot work directly with the bank on your mortgage deferral process. However, our brokers can help you if you are considering remortgaging or refinancing your mortgage. Give us a call at 403 571-8142 or email us at [email protected] to arrange a phone consultation.