Did you know you can easily finance purchases related to home ownership (i.e., renovations or home repairs) by using your home as a borrowing tool?


A Home Equity Line of Credit (HELOC) is a loan secured against the equity of your home. Because you’re using your home as collateral, this often means a lower interest rate on your loan. Additionally, borrowing to improve a home may result in increased home value.


How does a HELOC work?


Home equity is the difference between the value of a home and the unpaid balance of its mortgage. This value increases over time as a homeowner pays off a mortgage and the value of a home increases. HELOC loans can be distributed for up to 65% of a home’s appraised value, and can be combined with a regular mortgage for a maximum of 80% of a home’s appraised value.


A HELOC is set up as a line of credit with a set maximum draw, rather than a fixed dollar amount. Once a HELOC is negotiated, you can borrow up to your limit at any time. Much like a mortgage or credit card payment, you make minimum monthly payments on the borrowed balance. You would have a draw period during which you can use your line of credit, and a repayment period during which is must be repaid.


How is interest calculated?


HELOC interest is often calculated on a daily basis, since balances may change at any time depending on draws and payments. Your rate of interest is divided by 365, and then multiplied by the average daily balance during the month. For instance, a 28-day month may mean less interest than a 31-day month.


Are you interested in funding a temporary home project or other expense by using the equity in your home? To see if a HELOC would be suitable for your needs, contact Capital Mortgages today!