What to Use Your Home Equity Line of Credit for Canada
So often when home equity lines of credit are being promoted, it’s said that they can be used for “just about anything!” While home equity lines of credit in Canada can be a great way for homeowners to borrow without going too severely into debt, the fact that you can use them for anything you choose isn’t entirely true. There is a very, very long list of things you can use your home equity line of credit for. But the list is not endless, and lenders do often care about how you intend to use the money borrowed on your home equity line of credit.
Obtaining a loan for reinvestment purposes is almost always considered by lenders as a good reason to apply for a loan. For this reason, using a home equity line of credit in Canada to renovate your home is considered to be a good reason for the loan, because you’re reinvesting in your home by putting value back into it. Home equity lines of credit in Canada can also be used to buy a second property, whether it’s a rental property or a second home such as a cottage. In the case of rental property, it’s a huge investment because the borrower will be making a profit every month from the rental fees. Likewise, in the case of a cottage or vacation home, real estate is always considered to be a good investment because its value usually only appreciates. These are both great examples of using home equity lines of credit in Canada for re-investment purposes.
Often lenders will also look at the specific situation to determine whether or not it calls for a home equity line of credit. Medical emergencies or college tuition are reasonable and understandable reasons for needing quite a bit of money at one time. But if a lender sees that a homeowner is only going to be using their home equity line of credit to fund multiple vacations or buy things like numerous cars that quickly depreciate in value, the interest rate might be higher, and you might not be able to borrow against the full amount of equity in your home.
Just as important as it is to understand why it matters what you’re going to use the home equity line of credit for, it’s equally important to understand that as long as you have equity in your home, it’s very hard to get turned down for home equity lines of credit in Canada. However, a lender can always decide what they’re going to charge a homeowner for that line of credit, and if they don’t think the funds are going to be used properly, they could make that interest rate quite high. Also, lenders may not want to loan out the full 80% equity available, and may reduce it to 50% or 60%.
Home equity lines of credit can be just the thing that homeowners need when they are in financial difficulties and need money fast. However, it’s important that all homeowners carefully assess their needs, as well as what they’ll be using the line of credit for, in order to make sure that they’ll really get what they need from it.
Bryan J is the author of this article. For more information about home equity line of credit canada or helocs please visit canadianmortgagesinc.ca.
Processing your request, Please wait....
