A home equity line of credit (HELOC) is a convenient way of using the excess value in your home to borrow money. A HELOC provides you with an access card that allows you to withdraw money from the existing equity in your home at a lower interest rate compared to a traditional personal line of credit that is based solely on your personal credit score and your income.

They are usually only offered as variable rates, however some lenders will allow you to convert part of your HELOC into a home loan with a fixed rate and term. Similar to a credit card, a line of credit is revolving credit which allows you to withdraw and pay back into your HELOC whenever you want. Typically HELOCs have interest only payments required, which you will need to pay back on a monthly basis, on top of your regular monthly mortgage payments.

• Home improvements
• Debt consolidation
• Down payment on another home
• Investing

HELOC:

• Borrow money at any time
• Repay the minimum monthly or pay off in full at any time without penalty – a fully open loan
• Lower interest rates and longer term lengths vs. a home equity loan
• Must have a good credit score

Home equity loan:

• Borrow a one-time, lump sum amount
• Repayments on a set schedule
• Higher interest rates and shorter term lengths vs. HELOC
• Bad credit scores are accepted

Home equity is the amount of ownership of a property you have established through appreciation and the reduction of your mortgage principal. The more you pay off your mortgage, the more equity you build up. 

To calculate your home equity, take the current market value of your home and deduct the remaining balance of your mortgage. For example: If you owe $200,000 on your mortgage and your home is worth $500,000, you have $300,000 in home equity.

A HELOC is a convenient way of leveraging the value in your home to borrow money. It generally offers lower interest rates and allows you to access larger amounts of money. These features are possible since they’re secured by the value of your home.

If you reside in Canada, you can borrow up to a maximum of 65% of your home’s value with a home equity line of credit. If you combine your HELOC with your mortgage, your Cumulative Loan to Value (CLTV) cannot be more than 80% of your home’s value. So if you owe 50% of your home value on your mortgage, you would be eligible for a HELOC of up to 30%.