All You Need To Know About Secured Line Of Credit

When Canadians are looking to borrow with a secured line of credit

, theres no better choice than a home equity line of credit in Canada. Home equity lines of credit, or HELOCs as theyre better known, are a revolving form of debt that allows homeowners to borrow against the equity they have built up in their home. HELOCs are often confused with home equity loans, but the two work quite differently; and major changes to HELOCs imposed by the federal government in 2011 only increased the confusion.

HELOCs work very much like a credit card, and thats one way in which they differ greatly from home equity loans. With a straight loan, youll receive a lump sum of money at one time and start paying back that sum, principal and interest, almost immediately. With a HELOC on the other hand, youll receive a card much like a credit card and be able to draw small amounts from the secured line of credit whenever you need to. Although payments must be made every month on a HELOC, only the interest is due with the principal not being due until the end of the loan; and that can be for an indefinite amount of time.

Home equity loans also always come with a fixed rate, so youll be locked in to a certain interest rate for the full term of the loan. HELOCs though, always come with a variable rate, so the interest that youll pay each month may vary, even if youve withdrawn the same amount from month to month.

Because HELOCs are a secured line of credit, the borrower must put up collateral for the loan and in this case, that collateral is the equity the portion of the mortgage the homeowner has already paid, or equity built as value increases. Generally, HELOCs can be approved for up to 80% of the equity the homeowner has in the home.

The changes the Canadian government made to the HELOCs as of March 2011 pertained to the insurance the government once provided on these loans. While they did prior to the rule changes that spring, Ottawa noticed the trend of homeowners consolidating their credit debt with these secured lines of credit, and also realized that as they insured more of these loans, they also put themselves at more risk. While HELOCs are a great way to consolidate debt and pay it off at a lower interest rate, they are no longer insured by the government and therefore, some lenders are a bit more stringent in their requirements.

There are many other great reasons to use a HELOC as well including home renovations, emergency expenses, or because you need a little help making car payments. Before applying for this type of secured line of credit, its important you speak to a mortgage broker in Canada who can help get you the best deal; and also help you understand if a home equity line of credit is right for you.

by: Bryan.J

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