HELOC: Hurt so good

A seductive productive to borrowers and lenders alike, it’s time for the golden age of HELOC to come to an end

Home Equity Lines of Credit (HELOC), so fetch in the late 90s and early 2000s, are becoming kind of a big deal again.

Low borrowing rates and an exponentially rebounding market following the 2007 crash have made HELOCs a tempting product for many contemporary home owners.

A line of credit extended to a home owner using the borrower’s equity as collateral, HELOCs are a popular mortgage solution the Big Five offer customers. A HELOC can be used to consolidate debt and for home improvements. So, this means customers are free to use the credit line at their discretion.

Stop trying to make HELOCs a thing

Interest rates for a line of credit product are typically Prime plus 50 or 100 base points.

This is high, as are home equity lines of credit lending ratios (up to 80 per cent of the value of your home) leading to even the best-intentioned home owners being in danger of drowning in debt.

In theory, a HELOC sounds like a beneficial product. Monthly payment requirements are interest-only, and debt consolidation by any means can appear as a lifeline for home owners struggling financially. It’s easy to justify a HELOC if you’re dying to improve your abode by reframing it as investing in home equity when in reality the addition of a variable rate payment is not in your best interest from a holistic perspective.

In our sincere opinion, a HELOC is a positive choice for only the most discerning of clients. Currently, we’ll only entertain the idea of a line of credit for clients if their existing mortgage is already paid and they are using it to invest in more property.

As a HELOC doesn’t require borrowers to touch the principal when making payments, save for the most disciplined individuals; it’s easy to end up with one as a long-term addition to your payment schedule. Home owners are also susceptible to taking a hit financially as rates are subject to market influence. This means it’s easy to end up with a payment you can’t afford on a large line of credit.

Join the revolt

If you’re currently in a HELOC the time to strike back is now. Find an unbiased mortgage broker and get yourself into a variable-rate mortgage at an extended amortization by refinancing.

In our opinion, HELOC products seem to be proving more advantageous to the Big Five than consumers. Today’s typical Canadian requires guidance to ensure financial symmetry, and we recommend finding a broker who works in your best interest.

At a bank, you’re a transaction. So, with a broker, you’re a continuous relationship.

#TeamClinton

Have more questions? Feel free to contact us!