If you found this article interesting, we’ve got a newsletter you’ll love!
Sign-up today for On the Money by ATB.
Home Buying and Mortgages
Borrowing from a Home Equity Line of Credit
By ATB Financial 24 January 2024 3 min read
How does a home equity line of credit work?
A home equity line of credit (HELOC) is a line of credit that is secured by your home. Basically, when you own your own home, you build equity in that home as you start to pay down the mortgage and your home’s value becomes higher. A HELOC allows you to borrow money, up to 65 percent of the value of your home minus what you owe on it.
What are the benefits of a HELOC?
A HELOC can provide you with a number of benefits that provide flexibility and choice.
For example, you can choose to pay down the principal of your HELOC as much or as little as you want, and you’re only required to pay the minimum interest payment on the amount borrowed each month.
Perhaps the greatest benefit of a home equity line of credit is its flexibility. You can borrow from it whenever and as often as you need to. If you have made some payments on the line of credit, you can borrow again without having to apply or re-qualify for the loan again.
Another major advantage of a home equity line of credit is that the interest rates are lower than a regular line of credit because it is secured by your home. This means interest payments are usually lower than a typical line of credit or personal loan.
What can I use a HELOC for?
There are many reasons why you might consider a home equity line of credit. To pay for home renovations, purchase a second property, buy a new car, or go on vacation.
According to Carrick Lai, Director, Business Performance, ATB Financial, there are a number of practical reasons a HELOC might make sense. He says, “Some people use a HELOC to consolidate several high interest debts like credit card debt, car loans or other personal loans,” He adds, “They can put those all together, pay them off with the home equity line of credit, and give themselves a single, lower payment at a lower interest rate.”
ATB offers two types of HELOCs Which one works for you?
A standalone HELOC works best when you have built up equity in your home and are looking for a set amount of funds for possible immediate needs.
ATB Flex HELOC works best when you have an ATB mortgage and are wanting to access your equity in the future. You could be planning for a future goal or simply want a plan for expected expenses or opportunities. As you pay down your mortgage with regular and lump sum payments, the available limit on the line of credit limits increases.
Here are some key differentiators:
| Key Features/Benefits | Flex Home Equity Line of Credit | Home Equity LIne of Credit |
|---|---|---|
| What is it . . . ? | A HELOC attached to your ATB mortgage. As you pay down your mortgage this HELOC’s credit limit increases. | A revolving of Line of Credit with a predetermined amount that is secured by the equity in your home. |
| Must have an ATB mortgage | ✔️ | ❌ |
| Variable rate base on ATB Prime | ✔️ | ✔️ |
| Interest Only Minimum Payment | ✔️ | ✔️ |
| Credit Limit Grows | ✔️ Available amount auto increases as the associated mortgage is paid below 65% LTV | ❌ Full credit limit is set and available once funded |
| Able to split into multiple HELOC accounts | ❌ | ✔️ |
| Available on properties up to 160 acres | ✔️ | ✔️ |
| Available on Primary, rental and vacation homes | ✔️ | ✔️ |
| Client wants access to equity in the future and wants the convenience of one time application | ✔️ | ❌ |
| Loan Protection Insurance coverage available | ✔️ | ✔️ |
How do you know if a HELOC is right for you?
“Typically, the amount of money available in a HELOC would be much larger than a regular loan or personal line of credit,” said Lai. “If someone is not great at managing their own finances or doesn’t have a budget, having that much money available to them might create too big of a temptation for impulse purchasing and could get them into financial trouble.”
A HELOC is not meant to be used for daily purchases or regular living expenses. If you have struggled with these expenses and other forms of debt, it might not be the best option for you.
It is also important to be aware that the interest rate on a HELOC is variable. If and when the prime rate goes up, your minimum interest rate payments will go up too.
“Before taking out a home equity line of credit, you should always talk to a professional to make sure it’s the right fit for you. Make sure it fits into your whole financial plan and that you’re not getting into something you’re unsure of or might regret down the road,” advises Lai.
Check out our HELOC page for more information and to see if this option is right for you.
Ready to get started? Reach out to us.