A HELOC, or, Home Equity Line of Credit, can be one of the greatest gifts you give yourself. Borrowing money against your home as you accumulate equity through a shrinking mortgage or an increasing property value- something almost many people in the Vancouver and Toronto markets can relate to.
With all this increasing value and home appreciation, people are looking to cash in and utilize this new-found money. Unfortunately, one of the first things people think to do is sell! This can be counter-intuitive because you may of just sold your house for $150,000 more than what you bought it for last year, but you are now stuck buying a house that has gone up $100,000, $150,000, possibly $200,000 in the same amount of time.
So what can you do?
Open up a HELOC. You can do this separately through a second lender, move your mortgage over to one of the big banks like Scotia and enter a STEP, or utilize Manulife’s new Manulife One mortgage product. As you pay down your mortgage and accumulate equity in your home, you unlock the ability to spend money on a line of credit that is secured against that same equity you have built up in your home.
Let’s say you bought a pre-sale condo for $225,000. Two-years later it is worth $375,000. If you have that mortgage set-up with a HELOC component, you could potentially have $100,000 available to you on a line of credit if you qualify. What could you do with $100,000 where you are making interest only payments? Buy a rental property that breaks even or better yet has positive cash flow. You can build equity in a second home while someone else pays the mortgage through rent.
Don’t want to buy an investment property? Maybe you want to invest in stocks or funds where the expected return is more than the interest you are paying? Maybe you need to do renovations? Planning a wedding? Travelling? The list goes on.
Setting up a HELOC for yourself can open up many doors, all without having to give up your property and pigeon hole yourself into over-paying for someone else’s!