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Home Equity Line of Credit (HELOC)

Home equity lines of credit (HELOCs) are essentially revolving lines of credit secured against one’s home.

Or, to put it another way, a HELOC is a mortgage loan that lets the borrower take multiple advances of the loan proceeds at his or her own discretion, up to the lender’s stipulated maximum loan-to-value.  Borrowers only pay interest on the money they use.

The maximum loan-to-value of a HELOC in Canada is typically 75-80% of a property’s value.

One big difference between a HELOC and a variable-rate mortgage is that HELOC’s do not have guaranteed interest rates or terms.  Their rate can technically change at the lender’s discretion. 

A variable-rate mortgage, on the other hand, almost always has a rate that is tied to the lender’s prime rate.  So if prime does not change then one’s variable mortgage rate will generally not change.

There are other key differences as well, both positive and negative.  Speak with a licensed mortgage planner for a complete comparison.