Top Tips For Leveraging Your HELOC In 2024

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With the Bank of Canada’s interest rate finally decreasing, Canadian homeowners have an opportunity to leverage the value of their homes through a Home Equity Line of Credit (HELOC). 

Whether you want to consolidate debt, perform renovations or invest in real estate, HELOCs are cost-effective and flexible tools that help you manage your finances. In this post, we’ll explore the benefits of a HELOC and reveal some top tips for maximizing its potential. 

What Is A HELOC? Home Equity Explained 

A HELOC, also known as a Home Equity line of credit, is a revolving line of credit that uses the equity in your property. 

You can only get a HELOC if you have equity in your home, which usually counts as the deposit and the mortgage repayments you make. 

When you make regular payments, the outstanding mortgage gradually decreases, and market changes can increase value. 

You can use this equity as collateral for a line of credit, allowing you to release cash from the home. 

Home Equity Loan vs. HELOC

When deciding how to use your home’s equity, it’s important to consider whether a home equity loan or HELOC suits your needs. Both have benefits, but they work differently, and your choice depends on how you plan to use the money. 

Home Equity Loans

Home equity loans are similar to second mortgages, giving you a lump sum based on the equity you’ve built in the property. Most loan providers will lend a percentage of the equity, and you’ll rarely be able to use all of it. 

However, you could get a loan for between 70% and 80% of your equity, which is ideal for expensive purchases. Many loans have fixed interest rates, making knowing what you’ll pay each month easy. 

The benefits of a home equity loan include:

  • Fixed Interest: You won’t have to worry about increasing loan repayments as the interest rates are fixed.
  • Lump Sum Disbursement: If you’re planning for a large expense such as a renovation, loans provide immediate funds.
  • Tax Deductibility: Some home equity loans might be tax deductible, depending on your unique circumstances.

Potential drawbacks:

  • You might lose your home if you don’t make the repayments.
  • Taking on a loan increases your debt.
  • Most loans have closing costs and administrative fees.
  • Loans are long-term commitments.

HELOCs

A HELOC, on the other hand, is similar to a credit card as you’re approved for a maximum limit, but you only borrow what you need. For example, if you have a $100,000 HELOC and spend $50,000, you won’t need to repay the rest. 

Many people choose a line of credit when they don’t know how much they’ll spend or are working on a renovation project. 

The benefits of a HELOC include:

  • Flexibility: Borrow as much or as little as you need, up to your credit limit.
  • Interest Savings: You’ll pay interest only on the amount of money you withdraw instead of the entire credit limit.  
  • Variable Interest: These interest rates carry some risks, but your repayments can decrease if interest rates fall.
  • Interest-Only Payments: If you’re within the draw period, you can make interest payments, which reduces your financial burden. 

Potential drawbacks:

  • There’s always a temptation to overspend, which can impact your finances.
  • The post-draw period can be a shock as you’ll pay interest and the principal amount.
  • Market fluctuations might mean your home loses value, even with renovations.  

The main difference between a HELOC and a home equity loan is the line of credit is a more flexible solution. 

Top Tips to Maximize Your HELOC

So, if you’ve decided that a HELOC is ideal for your needs, it’s time to reveal how to use it properly. Here are some of the best ways to use your line of credit and ensure you get value for money. 

Home Renovations To Increase Property Value

Home renovations can breathe life into your new property and improve your living space. According to the Appraisal Institute of Canada, improvements to your bathroom, kitchen and exterior can significantly increase the property’s market value. 

Not only does this mean that you’re investing in the future, but you can also increase interest in your property and sell it for a higher amount. 

Using a HELOC is a beneficial investment strategy, as it allows you to renovate as needed without taking out a loan and worrying about making the full repayments. 

If you’re in BC, take advantage of the secondary suite incentive and $40,000 grant available to put in a mortgage-helper suite.

Consolidating Higher-Interest Debts

A home equity line of credit isn’t just about improving your home; you can also use it to consolidate high-interest debts and save money. For example, credit cards and personal loans often accumulate interest, but HELOCs have lower rates. 

Debt consolidation makes it easier to manage your finances and combine multiple payments into one convenient monthly amount. Many people find they can escape debt easily and reduce the interest they repay in the long run. 

Real Estate Investments

For those looking to grow their wealth, a HELOC can provide the funds required to invest in real estate. Whether you want to purchase a vacation property, rent an apartment or develop and sell buildings, getting a HELOC gives you cash to invest. 

It’s essential to remember that real estate investments can have some risks, but there are also substantial rewards when the property market rises. 

HELOCs enable you to access your home’s equity without putting it on the market, ensuring financial stability. 

Having An Accessible Emergency Fund

We all know that life can be unpredictable, but an emergency fund can provide much-needed financial support. HELOCs are backups for emergencies such as job losses, unexpected repairs and medical costs. 

You’ll only be charged interest on the amount you borrow, so you won’t need to worry about paying back interest on your loan. 

Consult With A Victoria BC Mortgage Broker About Your Home Equity

Home equity lines of credit can be a wise financial decision—as long as you know how to balance them. Whether for home renovations, emergency funds or investing in the future, remember to consider your needs and weigh the pros and cons. 

Speaking to a mortgage broker is the best way to discover your options and find mortgages that align with your financial objectives. At Prime Mortgage Works, we are ready and willing to help you secure your Victoria BC mortgage, or learn how to maximize your HELOC.

Book a consultation today with the top Victoria BC mortgage broker.