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Saturday, March 9th, 2024

Using a HELOC as a 2nd Mortgage – Ask a Vancouver Mortgage Broker

Using a HELOC as a 2nd Mortgage

Vancouver Mortgage BrokerWhat is a HELOC and how can you use it as a 2nd mortgage? What are the pros and cons of using a HELOC? This article will give a better understanding of how and whether you might want to apply for a HELOC.

The term HELOC simply means ‘home equity line of credit’. In essence it is a loan which is used as line of credit as opposed to going out and taking out a second mortgage for a fixed amount. You are essentially using your home’s equity just like a fixed amount 2nd mortgage, but only for the amount you actually need or spend.

A HELOC can be used for a variety of convenient ways as you can use it to refinance your mortgage, use for expensive home renovation projects, and university tuition for your children or to even to pay off debts.

How Much can you Take Out on a HELOC?

Most lenders will require that you have at least 20 % – 25% equity built up in your home before they will consider extending a home equity line of credit. The amount that you can take out will vary from lender to lender. The amount of credit they will extend to you also depends on your current financial situation and on your credit rating.

Advantages of Using a HELOC as a 2nd Mortgage

The advantages of using a HELOC include:

  • You don’t have to apply the line of credit specifically on your home and can use it for a variety of purposes such as that dream vacation you always wanted to take.
  • The interest rates tend to be quite a bit lower than if you went out and took out a personal loan or used your credit cards. If you were to use the line of credit to consolidate your credit card debts for example, you would be paying a much lower interest rate.
  • It very flexible to use. You can take it out all at once or use only as you need it, although there may be a time limitation on how long you can access it.
  • A HELOC is also very flexible when it comes to paying it back. You can repay the home equity line of credit not only as regular payments, but many lenders will allow you to make extra payments or to pay it off at any time and usually without any penalty. Repayment methods and requirements will also vary from lender to lender.
  • You can also use the HELOC as a convenient investment tool.

Disadvantages of a HELOC as a 2nd Mortgage

The disadvantages include:

  • A HELOC should be used wisely. Some lenders only require that you pay back the monthly interest owed as the minimal payment. If this is all you can afford to pay than you could end up paying back far more interest than the loan was worth in the first place. This would not be advantageous for you.
  • When using a HELOC as a 2nd mortgage, you must also remember that you will not be able to use that available portion of your home’s equity until it is repaid and that could be for some time to come. If you decide to get a home equity line of credit you should give careful thought about your ability to repay and avoid using it frivolously.

As you can see there are pros and cons to using a HELOC as a 2nd mortgage, but if you need some advice then we suggest you come and talk to your friendly Vancouver mortgage broker.


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