A home equity line of credit ( HELOC ) is a secured form of credit. The lender uses your home as collateral, guaranteeing that you'll pay back the money you borrow. HELOCs are revolving credit. You can borrow money, pay it back, and borrow it again, up to a maximum credit limit.
You usually have no fixed repayment amounts for a HELOC. Your lender will generally only require you to pay interest on the money you use.
Question: What types of HELOCs are there?
Answer: There are 2 main types of HELOCs: the first is one that’s combined with a mortgage, and the second is a stand-alone product.
Question: What is a home equity line of credit combined with a mortgage called?
Answer: It’s sometimes called a readvanceable mortgage. Many of Apply’s financial institutions offer readvanceable mortgages, or a HELOC combined with a mortgage.
Question: What payments and loan limits are made on a re-advanceable mortgage?
Answer: The portion that is a fixed term mortgage will have an amortisation period. You have to make regular payments on the mortgage principal and interest based on a schedule.
The credit limit on a HELOC combined with a mortgage (readvanceable mortgage) is the maximum of 65% of your home’s purchase price or market value. The amount of credit available in the HELOC will go up to that credit limit as you pay down the principal on your mortgage.
Question: How does a borrower buy a home with a home equity line of credit combined with a mortgage or readvanceable mortgage?
Answer: You can finance part of your home purchase with your HELOC, and part with the fixed term mortgage. You can decide in our mortgage products engine how to best use these two portions to finance your home purchase.
Question: What is the downpayment or home equity requirement for a readvanceable mortgage?
Answer: You need a 20% down payment or 20% equity in your home, and you’ll need a higher down payment or more equity if you want to finance your home with just a HELOC.
Question: What portion of my home can I finance with the HELOC component of the readvanceable mortgage, or HELOC’s in general?
Answer: The portion of your home that you can finance with your HELOC can’t be greater than 65% of its purchase price or market value. You can finance your home up to 80% of its purchase price or market value, but the remaining amount above 65% must be on a fixed term mortgage.
For example: you purchase a home for $400,000, make a 20% downpayment of $80,000. Your mortgage balance owing is $320,000. The maximum you’d be allowed to finance with your HELOC is $260,000 ($400,000 x 65%). The remaining $60,000 ($320,000 - $260,000) needs to be financed with a fixed term mortgage.
Question: What’s the second type of HELOC?
Answer: Stand-alone home equity line of credit. A stand-alone HELOC is a revolving credit product collateralised by your home. It’s not related to your mortgage.
Question: What is the maximum credit limit on a stand-alone HELOC?
Answer: Maximum credit limit on a stand-alone HELOC is 65% of your home’s purchase price or market value, and won't increase as you pay down mortgage principal (if any).
Question: Will I need to re-qualify for my HELOC if I don't use it immediately?
Answer: You only have to qualify and be approved for a HELOC once. After you’re approved, you can access your HELOC during its term whenever you want.
Question: Can you substitute a HELOC for a mortgage?
Answer: A stand-alone HELOC can be used as a substitute for a mortgage. You can use it instead of a mortgage to buy a home. Buying a home with a HELOC instead of a traditional mortgage means you’re not required to pay off the principal and interest on a fixed payment schedule. There’s a higher minimum down payment or more equity required (at least 35% of the purchase price or market value). Using a HELOC as a substitute for a mortgage can offer flexibility, as you can choose how much principal you want to repay at any time. You can also pay off the entire balance any time without paying a prepayment penalty.