Of Prime Interest: The goods on home equity lines of credit

Kelowna column on your home financial needs takes a look at lines of credit

Of Prime Interest column

I’m sure we’ve all heard of the following: Credit line, line of credit and home equity line of credit. They all refer to the same product—a line of credit that allows you have credit available to you on a moments notice.

Most people will utilize the revolving credit for such purposes as:

1) Investment such as purchasing stocks, bonds, RRSP’S, TFSA

2) Available credit ready to invest in other properties

3) Renovations to an existing home

4) Purchase new appliances, vehicles or other personal assets.

A revolving line of credit allows you to draw on the credit and as you pay it back the credit is again available to you. A huge benefit of a line of credit is that they are open meaning there is no interest penalty to pay it off. Typical minimum monthly payments are in most cases interest only. Credit lines can be either secured or unsecured depending on the credit limit of the facility. Interest rates are higher on unsecured credit lines and have much lower limits due to the fact the financial institution does not have any collateral.

When we refer to a secured line of credit we mean the financial institution will place a mortgage on your property to secure the line of credit. The limit of the credit available will be based on a percentage of the value of your home and the maximum for your line of credit is 65 per cent of the value of your home. As an example if your home is valued by an appraisal at $500,000 and you do not currently have a mortgage the limit of the line of credit will be $325,000 which is 65 per cent of the appraised value of your home.

Your total mortgage can be up to 80 per cent of the value of your home but only 65 per cent of that value can be in the form of a line of credit. The remaining 15 per cent can be in any term offered 1 to 5 year fixed or variable. Interest rates for secured credit lines are usually at Prime + .50 per cent (3.20 per cent in today’s market and anywhere from Prime + 2.00 per cent and up for an unsecured credit line.

With a line of credit your interest rate floats with the financial institution’s prime interest rate so if prime fluctuates up and down the interest rate being charged to you will also change. A line of credit is a great tool to have giving you access to available credit for those quick purchases, renovations, investments etc at a rate much lower than your average credit card.

Of Prime Interest is a collaboration of mortgage professionals:

Trish Balaberde 250-470-8324 trishb@kelownahomemortgages.ca, Darwyn Sloat 250-718-4117, dsloat@creativemortgage.ca, Christine Hawkins 250 826 2001 christine@kelownahomemortages.ca.

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