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Use your HELOC to pay off Higher Interest Rate Debt



I’m Nathalie Ng. I am the Money Chick- A mortgage agent who is licensed to give you unbiased advice on your mortgage. 

Nathalie, I hear so much about HELOC’s what are they?

 

Home Equity Line of Credit is a smart and flexible financing solution for home owners who own an existing property. It is an integrated financing solution where the home owners borrow in a convenient way & unlock the equity they have built up in their home. They can use that capital however they wish.

What are the reasons in general people would get a HELOC?

There are many reasons for getting a HELOC. Whether it’s paying down high interest rate debts, undertaking home renovations, or simply handling day-to-day expenses, many people seem to be feeling the financial squeeze. But few realize there’s something close at hand that can help them manage all of their credit 
needs.

Can you give me a practical example when it is used?

HELOC’s are usually used to pay off:  High Interest Credit Card debts, car & personal loans & unsecured lines of credit. Because the existing credit cards debts are at very high interest rate ranging from 19 to 30%, a HELOC is much more viable since the rate on a HELOC product ranges from (Prime rate +0.5) to (Prime +1). So it can be as low as 3.5 or 4% roughly. This represents significant savings in interest.

Another key benefit of the HELOC is that it allows you to take advantage of interest rates that are lower than most other debt products, namely, unsecured credit lines, some car loans etc…. That could mean savings of hundreds of dollars or more each every year. 

So it seems there are potential savings when using HELOC to pay debts..  Can you give me another example?

Some people use it to do home renovations in their basements. These can cost $20,000 and up. For example- If someone is renovating their kitchen and/or basement, and the cost is let’s say $30,000. Instead of paying cash or using credit cards of 19%, the homeowner you can do a HELOC for lets say 4% and the minimum monthly payment is only $99! That is pretty good.

What if people already have a mortgage. Can they still get a HELOC?

Very often, people refinance their mortgage since their mortgage of 3 years ago, is more expensive than mortgage rates now. So it is in their best interest to refinance now. So I encourage them to take the extra 
equity out and use it for personal use. All this can be accessed through a single, one-time application. 
In the case where they don’t need to refinance, they can just obtain a HELOC as a 2nd mortgage. It is also
good to remember that a HELOC is like an open mortgage- so there are no fees or charges to pay that Line of credit in full. 

Can anyone apply for a HELOC?

Yes, anyone who is a home owner can apply. However, to be eligible, they need to have a Triple AAA client, good credit and a stable job. And those who are approved, they can only borrow up to 65% with a HELOC. New rules effective July 9th, 2012.  One word of caution I would like to add though: Is that a HELOC is not to be used to satisfy shopping indulgences such as mall shopping, or big screen TV. A person who is getting a Line of Credit to buy such household items should think twice about that. 

That is great information, thank you Nathalie. How can we get hold of you?
Thank you, I can be reached at             416-629-1818      

David Pylyp

Etobicoke Real Estate Agent

Accredited Senior Agent for York Peel and Halton Regions

Lives in Toronto and promotes Giving Value

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Comment balloon 0 commentsDavid Pylyp • June 27 2012 10:33AM
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