| In a November, 2007 report, the Canadian Association | | | | $36,000. |
| of Accredited Mortgage Professionals (CAAMP) | | | | With a HELOC, you do not necessarily have to use all |
| stated that in the previous 12 months, 17% of | | | | of the credit at once. You can use it as needed and |
| mortgage holders took out home equity loans or | | | | pay back what you borrow, just like a standard line of |
| increased their mortgage. The average equity loan | | | | credit. |
| was $35,400. | | | | On the other hand, home equity loans are one-time, |
| What are people doing with all this money? Paying | | | | lump sum loan. If you need more money, you'll need |
| down debts, sending the kids to school, investing in their | | | | another loan. |
| homes - there are many possible answers to that | | | | The general guideline is that a HELOC is best for |
| question. If you've ever considered tapping into your | | | | those who need access to varying amounts of money |
| home's equity, the following FAQs can help you decide | | | | for ongoing expenses, whereas a home equity loan is |
| whether home equity loans are the right strategy for | | | | better suited to those needing a specific amount for |
| you. | | | | one large expense, like a home renovation. |
| What Are Home Equity Loans? | | | | What About Interest Rates? |
| Home equity is the difference between the market | | | | Home equity loans typically have fixed interest rates, |
| value of your home and what you still owe on the | | | | while HELOC rates are variable. The interest rates for |
| mortgage. So if your house is valued at $300,000 and | | | | both are typically pegged to an institution's prime rate, |
| you still have $260,000 outstanding on your mortgage, | | | | and are often significantly lower than those charged |
| your equity would be $40,000. | | | | for vehicle loans, credit cards and personal loans. |
| Home equity loans enable you to borrow against that | | | | What is Mortgage Refinancing? |
| equity. These loans are also known as second | | | | With refinancing, you pay off your existing mortgage |
| mortgages because they are a second loan (the | | | | and obtain a second mortgage for a lower interest |
| primary mortgage being the first) that uses your house | | | | rate. With a "cash-out" mortgage or refinance you can |
| as collateral. | | | | borrow more than what you owe on your mortgage. |
| How Much Can You Borrow? | | | | You can then take the extra money and use it for |
| With most home equity loans you can borrow | | | | expenses like tuition, home improvements and so on. |
| anywhere up to 85% of the amount of your home | | | | Refinancing may include costs for mortgage fees and |
| equity. For the case above, with $40,000 in equity, the | | | | prepayment penalties. |
| homeowner could borrow $34,000. | | | | What are the Pros and Cons? |
| Some lenders have more generous options, even | | | | On the plus side, home equity loans provide low-cost |
| offering to lend 100% of the amount of equity in your | | | | credit for important expenses. In extreme cases, the |
| home. | | | | risks are that the home market slows and you end up |
| How is a Home Equity Line of Credit Different? | | | | owing more than the value of your home, or that you |
| A home equity line of credit (HELOC) is much the | | | | overspend and default, which means the loss of your |
| same as a standard line of credit, but it uses your | | | | home. |
| home's equity for security. With a HELOC you can | | | | For many people the pros outweigh the cons. To be |
| typically borrow up to 90% of your home's equity. With | | | | sure if a HELOC or loan is right for you, it is best to |
| $40,000 in equity, you could obtain a HELOC for | | | | consult with a mortgage professional. |