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| Svitlana Mazepa UCU Branch Manager, Etobicoke. |
Ukrainian Credit Union Limited offers its members a wide range of mortgage options
designed to fit their specific needs. In this article I will
explain Home Equity Lines of Credit.
What
is a HELOC?
A Home Equity Line of
Credit (HELOC) – is a revolving type of mortgage that lets homeowners obtain
money from the value, or ‘equity’ of their home without having to sell
it. Equity is the
difference between the price for which a home could be sold and the total debts
registered against it. New federal lending rules set the ‘credit limit’ (the
percentage of a property’s value that homeowners can borrow against) at 65% of the home's appraised value. A HELOC can be combined with a regular mortgage for a maximum of
80% of the
home's appraised value. For example:
Your home is currently worth $500,000 and your regular mortgage balance is $300,000. You could be approved for a
maximum $100,000 HELOC.
Appraised value of property
|
$500,000
|
Maximum for HELOC and mortgage combined,
(80% of $500,000)
|
$400,000
|
Less balance owed on mortgage
|
$300,000
|
Potential
HELOC limit
|
$100,000
|
As you pay down your mortgage, your potential credit limit goes up. If
the mortgage is fully paid off, a HELOC can be set
up on its own, (65% of $500,000)
|
$325,000
|
The approval process generally requires a home appraisal and verification of your income. In determining your credit limit, your credit score and other financial obligations will be
reviewed.
Features and Benefits
Because a home is typically a person’s biggest asset, many homeowners use HELOCs for large expenses, such as home improvements, education, vehicle purchase, vacation, or medical bills and not for day-to-day expenses.
A HELOC is the best product to consider if:
Ø you want to purchase an asset such as a retirement property using your home as full or partial security
Ø you have sufficient net worth but your assets are spread out over many investment types, making it difficult to raise cash quickly
Ø there is sufficient equity in the home to use it to secure future loans without having to register an actual mortgage every time additional funds are required
Ø you want a low-cost, on-demand borrowing option (especially compared to credit cards or unsecured loans)
A HELOC is attached to your Personal Chequing Account and can be activated by writing a cheque, making a cash withdrawal, or debiting the account through Interac, pre-authorized debit, or on-line and telephone banking. Borrowers may use this money whenever they want, up to the credit limit, then they can pay it back and borrow again. A HELOC can also work as an inexpensive Overdraft Protection mechanism – if there are not sufficient funds in your chequing account, the money is automatically transferred from the HELOC.
Interest on a HELOC
The HELOC helps homeowners borrow money at a low interest rate by using their property as security. The interest rate on a HELOC is variable and fluctuates with the Prime rate. Because the balance of a HELOC may change from day to day, depending on draws and repayments, interest on a HELOC is calculated from the outstanding balance. No interest or payment is due until the borrowers actually spend money.
Ukrainian Credit Union Limited offers its member the interest rate starting from Prime rate (currently 3%). Such low interest rate makes HELOC also a good vehicle for those seeking to consolidate other debts – for example by paying of a credit card or two that are charging you 29.99%
Repayments
The Home Equity Line of Credit has flexible payment options. At Ukrainian Credit Union Limited a HELOC may have repayment as low as 2% of the amount used or just the accrued interest on the outstanding balance, based on the member’s preference. Borrowers have a choice to transfer a lump sum or to set up regular automatic payments. Regular automatic payments are processed from the Personal Chequing Account. Payments and inquiries are available at any Ukrainian Credit Union Limited branch, as well as through U-Touch Telephone Banking or On-Line banking.
The Home Equity Line of Credit has flexible payment options. At Ukrainian Credit Union Limited a HELOC may have repayment as low as 2% of the amount used or just the accrued interest on the outstanding balance, based on the member’s preference. Borrowers have a choice to transfer a lump sum or to set up regular automatic payments. Regular automatic payments are processed from the Personal Chequing Account. Payments and inquiries are available at any Ukrainian Credit Union Limited branch, as well as through U-Touch Telephone Banking or On-Line banking.
Contractual payments are required once a month, usually on the first day of each month. Interim payments made during the month, if sufficient to meet the requirements of the next monthly instalment due, will defer the next payment date for one payment period.
Interest only payment is ideal for covering a short term situation. For example, a borrower may be buying a new home before selling his existing property or buying an investment property. By paying interest only, the loan payments are minimized until the money becomes available to repay the loan. Borrowers can then repay all the money borrowed (called the principal) in one final payment.
The HELOC is an open loan and can be paid down or paid off completely at any time, without penalty – this makes the HELOC a great product for borrowers who have the ability to make regular extra payments or have short term plans to pay their mortgage off completely.
The HELOC is a registered charge on the property and must be paid in full if the property is sold.
Creditor Insurance
Homeowners might also seek a HELOC to establish security in case of job loss or financial hardship. Ukrainian Credit Union Limited offers creditor insurance on HELOCs, that is, life, disability, loss of employment, and critical illness insurance. Insurance guarantees that payments will continue to be made if the borrower loses the ability to pay the HELOC.
A HELOC is not for everyone, but it can be a great solution, depending on your personal circumstances. If you woud like to discuss whether a HELOC is the right choice for you, please call me or contact the Ukrainian Credit Union Limited branch nearest to you!
Svitlana Mazepa,
Branch Manager, Etobicoke
Ukrainian Credit Union Limited
416-233-1254 x 225
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