What is a home equity line of credit?

A home equity line of credit is a line of credit secured by real estate. It is another type of unamortized mortgage. As a result, the borrower must at least periodically repay interest under the agreement, but there is normally no requirement for repayment of principal. These lines of credit constitute a form of revolving credit because any amount of principal repaid becomes available again to the borrower up to the approved amount, provided that the margin has been used and repaid according to the terms of the contract. A line of credit secured by real estate may have an indefinite term or be granted for a set period of time, such as five or ten years.

Mortgage line of credit: advantages and disadvantages

The benefits of a home equity line of credit are:

• Access to available credit is easy
• The interest rate is often lower than other types of credit (especially unsecured loans and credit cards)
• You only pay interest on the amount borrowed
• You can repay the amount borrowed at any time without penalty
• You can borrow the desired amount as long as it does not exceed your credit limit
• It is flexible and you can adapt it to your borrowing needs
• You can consolidate your debts, often at a lower interest rate

The disadvantages of a home equity line of credit are:

• Since monthly minimum payments are generally very low, one must be disciplined so that the debt is paid within a reasonable period of time
• To transfer your mortgage elsewhere, you may have to pay off all of your mortgage line of credit and related credit products.
• Your lender can take possession of your home in case of default, even after discussing a repayment plan.

Criteria for being eligible for the home equity line of credit

You must demonstrate eligibility and obtain one-time approval for a home equity line of credit. When you have a home equity line of credit, you can access it whenever you want.
You will need:

• A down payment or home equity of at least 20%
• Or a down payment or home equity of at least 35% if you want to get an independent mortgage margin rather than a mortgage

Your mortgage broker will be able to advise you on the type of product that suits you according to your needs. Do not hesitate to ask him if the home equity line of credit is a product for you!