Home Equity Line of Credit – Interest Rates in Canada
Equity is what you own on your house and can increase as you pay off your mortgage or when the value of your home rises. A home equity line of credit (HELOC) is a way for you to borrow increments of money while using your home as collateral. It’s a way for you to borrow money as you need it and only pay interest on what you use.
With a HELOC, you don’t have to stress about a ticking clock or penalties, and it’s a ideal for circumstances likes home renovations or emergency repairs. After your creditor has confirmed your qualification for a HELOC, you’ll be allowed to withdraw up to your negotiated credit limit.
If you own a house and are considering a personal loan, look into a home equity line of credit first to see which option is best for you.
Home Equity Line of Credit Rates
From the day you withdraw money to the day you pay it back, you will have to pay interest. Line of credit interest rates in Canada vary and may be affected by your credit score; i.e., you’ll pay a lower rate if your credit score is high. Home equity lines of credit rates are generally low with high credit limits, since your home is being used as collateral.
If you want to qualify for a HELOC at a bank, they will add 2% to the interest rate you negotiated with your lender or use the Bank of Canada’s conventional five-year mortgage rate.
Line of Credit vs. Loan
Loans are available to individuals and businesses, consisting of lump sums you must pay back by consistent and periodic installments. There are several types of loans, including mortgages and personal loans. Lines of credit are also available to individuals and businesses. They are revolving, meaning the consumer can continually borrow up to their credit limit after the amount has been paid back; most lines of credit don’t have an end date.
A business line of credit (LOC) is also revolving with an agreed-upon credit limit that you can arrange with a financial institution. Small businesses should only use it for short-term needs, including:
- inventory purchases
- essential equipment reparations
- temporary cash-flow gaps
- unexpected opportunities
Secured and Unsecured Line of Credit
A secured line of credit requires you or your business to use an asset as collateral. A HELOC is a secured line of credit because your home is your safety net—it would be not unlike taking out a second mortgage. Businesses will use inventory or accounts receivable as collateral, as they are using the money to fund short-term assets.
An unsecured line of credit doesn’t use collateral, resulting in smaller credit limits and higher interest rates since the lender is taking a risk. Credit cards are a common example of this. Without collateral, businesses usually need a strong credit score and a positive reputation if they hope to qualify for this LOC.
We recommend you layout a solid plan to prevent yourself or your business from borrowing money you can’t pay back. Call us today at 403-875-2969 and the professionals at Unbeatable Mortgages will be happy to assist you!