Marie and Jacques, homeowners for over ten years, sit at their kitchen table to discuss their future plans. Their children are now grown and gone, and they are considering renovating their home to modernize it. However, they wonder how to finance these renovations without dipping into their retirement savings. That's when their mortgage broker tells them about the home equity line of credit.

 

 

Marie and Jacques learn that a home equity line of credit is a financial product that allows homeowners to borrow against the equity in their home. Their broker explains that the limit of this line of credit cannot exceed 65% of the market value, but as they repay their mortgage, the amount available on their line of credit increases.

 

Unlike a traditional mortgage loan, a home equity line of credit does not require fixed monthly principal repayments. They only have to pay the interest on the amounts borrowed, with the possibility of repaying the principal at any time. However, certain conditions must be met, and a mortgage stress test must be passed to access this option.

 

 

With the information in hand, Marie and Jacques realize that this line of credit can be flexibly used, almost like a bank account. Even once their mortgage is fully paid off, they can continue to access this line of credit. They may also consider using the line of credit to finance the purchase of a new property, combined with a fixed-term mortgage, provided their down payment is at least 20% and the line of credit does not exceed 65% of the value of the new home.

 

 

Although the interest rate on a home equity line of credit is often higher than that of a traditional mortgage loan, it is generally lower than that of personal loans. Marie and Jacques can use this option for various projects, such as:

 

- Renovating their home

- Acquiring a second home

- Maximizing their RRSP contributions

 

Disadvantages of the Home Equity Line of Credit

 

However, they must also be aware of the associated risks. The broker emphasizes the importance of strict financial discipline, as only monthly interest payments are required, thus increasing the risk of over-indebtedness.

 

 

With all this information in mind, Marie and Jacques feel more confident about making an informed decision. They understand that the home equity line of credit can be a powerful tool to finance their renovation projects, provided it is used wisely and they remain disciplined. By carefully assessing their credit needs and having a detailed plan for the use of funds, they can maximize the benefits while minimizing the risks.

Give us a call today and we’ll put our experience to work in helping you find the perfect solution !

 

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