HELOC & Mortgage - Game of Finance
There are several opinions about HELOC’s ( Home Equity Line Of Credit) and the debt Canadians have accrued over the last few years. As long as you remain smart with your money and are not over extending yourself financially, this is something I would advise and recommend to anybody who is either shopping for a new mortgage, or is refinancing their existing mortgage.
Get a line of credit.
More often than not, I see people either locking into a new rate when refinancing, or they purchase a home only to apply for a HELOC within a year or shortly after. What most people fail to realize is that obtaining a HELOC after the fact requires the same painstaking process as when you initially refinanced or obtained a new mortgage.
- There will be a HARD credit check
- Verification of income will be required
- An appraisal will be needed ($300-$350)
- Time spent on meeting with the lender, possibly multiple visits
- In most cases, a lawyer will have to register it, at a cost of $500+
Reasons why you should get a HELOC along with your mortgage:
- Your home may be worth $1,000,000 today and $800,000 in a year’s time. This will impact the amount you can borrow.
- You may have no debt today, but in a year’s time, your debt may have increased, which will impact your credit score and could make it harder to get approval for a HELOC.
- The interest rate that you can get today could be higher a year from now.
- You only have to have your home appraised once.
- There will likely be just 1 hard credit check.
- It's usually best to have your mortgage and your HELOC with one lender as you will get the best rates.
- Your salary today could be different a year from now which could impact the interest rate and the amount you can borrow.
- You may be in a situation where you need to consolidate your debt, lower your payments and gain control of your finances.
- New lending regulations may impede your ability to get a HELOC in the future.
- Payments are usually interest only and balance can be paid in full at any time
My advice to you - save the extra expenses, save your time, and if your lender will allow, get a HELOC at the same time you obtain a new mortgage or when you refinance. You may think that you won't need it, however, there are times when you will wish you had it. If you suddenly have large unexpected expenses (ie new roof), or if you have the urge to renovate your kitchen or worst case scenario, you lose your job, you can use this money to help.
My final thoughts are; there is no harm in having a HELOC. You can use it or not, but having the peace of mind that there is a cushion if you need it, is invaluable.