Step 1: Know what you need and want in a mortgage
Home equity lines of credit (HELOC)
A home equity line of credit (HELOC) is a revolving line of credit secured by your home. You can borrow money up to the credit limit, which is usually a percentage of your home's value.
A HELOC is an option for borrowing on your home's equity, which is the difference between the value of your home and the unpaid balance of any current mortgage. For more information, see Borrowing on Home Equity.
It is also possible to get a HELOC instead of a traditional mortgage. These products may be split into portions that you repay in different ways. For example, a HELOC may have a portion with a fixed interest rate and another portion with a variable interest rate.
- Registered with a collateral charge: After a HELOC is set up, you do not need your lender's approval to borrow funds up to the credit limit, subject to the terms of the HELOC agreement.
- Additional funds can be advanced: You can borrow money up to the credit limit on the HELOC, which is usually a percentage of your home's appraised value. After you make repayments, the funds become available for you to borrow again.
- Variable interest rate: The interest rate for a HELOC is usually variable, so your payments may increase if rates rise.
- Interest-only payment option: You may have the option to just pay the interest due on a HELOC instead of a set payment amount. However, be aware that making interest-only minimum payments will increase the overall cost of your loan and the time you need to repay it since you are not paying off the principal.
It can be very easy to borrow more money than you can comfortably afford to repay with a HELOC. Make sure you will be able to handle repayments if interest rates and your payments increase in the future.
- Ability to make prepayments: You can generally prepay any amount whenever you want on the HELOC portion without the need to pay a prepayment charge. Note that prepayment charges may apply to any other portions that have a closed term.
The features and characteristics of individual lenders' products may vary. Check with the lender.