How would you like to purchase property using no money out of your bank account? It may sound like a late night infomercial but I can assure you, it's not!
The majority of Canadians do not make good use of credit available to them; the Home Equity Line Of Credit (HELOC). The HELOC is a great tool to free up that money you would get if you sold now without actually having to 'sell now.'
Let’s say you already own property. The difference between what it’s worth now and what you owe on it is called equity. Normally, in order to access that equity, you’d have to sell the property first.
An alternative way to access that equity, however, is a HELOC. This is a loan—usually a second mortgage—added on top of your existing mortgage.
A HELOC kind of acts like a gigantic credit card. It allows you access to a big line of credit, but you only pay when you’re using it. And the interest rate is actually way lower than a credit card—sometimes under 5 percent. (Something to note, however, is that the interest rate is often variable, meaning it goes up and down.)
An investor purchases a home for $100,000 with an $80,000 loan. So far, he or she has paid down the loan to $60,000. Meanwhile, the house has appreciated to $120,000.
Now the owner can take out a HELOC to tap into up to 90 percent of the current value of the home. So, 90% of $120,000 is $108,000. Subtract $60,000, representing the amount still owed to the bank. The owner can then use this $48,000 line of credit for a down payment on another property.
Pros and Cons of HELOC's
HELOC's are great for buying a rental property or a 'Fix and Flip' renovation project. Contact me now and I'll send great reno projects and rental properties in your neighbourhood. This will not subscribe you to my email list.