HELOC … What is it?
If you turn on any media source or drive down any number of streets you’ll have heard the real estate market is on fire or see signs that say SOLD- Over Asking. This is great for sellers but is very challenging for buyers. Now that home prices have increased, this has helped other home owners that are looking to tap into their homes equity by way of Home Refinancing.
Over the last few months our office has been working with many clients on refinancing into new mortgages to either save money on interest or increase monthly cash flow. Most clients want to either take advantage of the low interest rates or accessing their equity to do some home renovations, pay off some higher interest debt etc.. Often times our conversations end up leading us to adding a line of credit to their home. This is a great option if you don’t need the funds now but want to ensure they’re are available for future use.
So how does the HELOC work?
Let’s assume you have a current mortgage of $450,000 and your house is appraised at $1,000,000 Most lenders will allow you to refinance your home to 80% of the appraised value. In this case you were able to borrow up to $800,000 assuming you have the income to support it. In this scenario, clients income supports this and so you want to take out $100,000 to renovate your basement and do some landscaping (Home enhansments are something more and more people are doing now that we find ourselves spending all of our time at home)
This is one way we could restructure your mortgage:
$450,000 (current mortgage)+$100,000(home renovations)=$550,000 new mortgage plus a line of credit of up to $250,000
The new total mortgage charge is 800,000 ($550,000+$250,000)
Now I can hear you saying I don’t need a line of credit for $250,000 and you’re right you most likely don’t need it today however setting it up today when you are in your higher income earning years will protect that equity and allow you to borrow in the future should you want to, there are many uses for the line of credit and it’s available should you need it. The great part of lines of credit, If you don’t use it-you don’t pay anything for it.
So if you want to discuss a HELOC or refinancing your home to take advantage of the equity and the low rates give us a call and lets work through some numbers for you.
Until next week I hope you all have a great one, take care!
Want to connect? Email me at firstname.lastname@example.org | Call or text 905-870-0513