Mortgage FAQ
Frequently asked questions
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home's equity, allowing you to borrow funds up to a set limit as needed.You pay interest only on the amount you use, and you only need to make at least monthly interest payments while you have a balance.HELOCs offer flexible access to funds for various purposes, such as home renovations or debt consolidation.
How does a HELOC work:
Secured by your home: The credit line is backed by the equity you've built in your home.
Revolving credit: Similar to a credit card or Line of Credit , you can borrow, repay, and then borrow again, up to your approved credit limit, but it is usually at a much lower interest rate then unsecured lines of credit and credit cards.
Borrow as needed: You only pay interest on the money you actually draw from the line of credit.
Variable interest rate: HELOCs usually have a variable interest rate, which can go up or down with market changes.
To discuss if this product will help you reach your financial goals please contact me at 250-299-3886 or book a meeting with me to discuss your options.
HELOC combined with a mortgage
This HELOC depends on your mortgage. This means you need to contract it with the same lender who issued your mortgage. Your available credit increases as you pay down your mortgage principal. It’s also sometimes called a readvanceable mortgage.
Many financial institutions offer a HELOC combined with a mortgage under their own brand name.
Standalone HELOC
This HELOC is independent from your mortgage. The available credit won’t increase when you pay down your mortgage principal. You may choose different lenders for your mortgage and your HELOC. You may get this type of HELOC even if you don’t have a mortgage.
Most major financial institutions offer standalone HELOCs.
You may use it instead of a mortgage to buy a home. Before you do so, carefully consider the benefits and the drawback.
Examples include:
you may choose how much principal to repay at any time
you may pay off the balance at any time without a prepayment penalty
you must make a higher down payment and have more equity
your interest rate may be higher
Talk to a Mortgage Broker to help assess what type is best for you. Please contact me at 250-299-3886 anytime or book a meeting to discuss which type is best for your financial situation.
When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a lender to help pay for your home is a mortgage.
A mortgage is a legal contract between you and your lender. It specifies the conditions of your loan and secures it on a property, like a house or a condo.
With a secured loan, the lender has a legal right to take your property. They may do so if you don’t respect the conditions of your mortgage. This includes paying on time and maintaining your home.
Unlike most types of loans, with a mortgage:
a property secures your loan
you may have a balance owing at the end of your contract
you usually need to renew your contract several times until you pay off your balance
you need a down payment
you may need to break your contract and pay a penalty
your loan is typically for an amount in the hundreds of thousands of dollars
you may need to meet qualification requirements including passing a stress test
Mortgage Principal
Is the purchase price minus the down payment
mortgage loan insurance can be usually be added to the this amount
Mortgage Payments are a combination of several things:
principal
interest
optional mortgage insurance if you purchased this option
property taxes if you pay them through your lender
Term is the Length of time you mortgage contract is in effect. Terms can range from 6 months to 5 years or longer. At the end of the term you will be required to renew your mortgage.
The amortization period is the length of time it takes to pay off your mortgage. With a longer amortization period, you spread your payments over a longer period. This means your payments are typically lower. Keep in mind that the longer you take to pay off your mortgage, the more interest you pay.
If your down payment is less than 20% of your home’s price, your maximum amortization period is:
30 years if you’re:
a first-time buyer and/or
purchasing a new build
25 years in all other cases
If your down payment is more than 20% of your home’s price, your lender sets your maximum amortization period.
Types of interest
A fixed interest rate stays the same for the entire term. It’s usually higher than a variable interest rate for a similar term. With a fixed interest rate, your payments stay the same for the entire term.
A variable interest rate may increase and decrease during the term. Typically, a variable interest rate is lower than a fixed interest rate for a similar term. With a variable interest rate, you may keep your payments the same for the duration of your term.
A hybrid or combination mortgage offers fixed and variable interest rates. Part of your mortgage has a fixed interest rate, and the other has a variable interest rate. The fixed portion offers you partial protection in case interest rates go up. The variable portion provides partial benefits if rates fall.
Payment frequency refers to how often you make your mortgage payments. You may choose a standard or an accelerated payment schedule. Accelerated payments allow you to make the equivalent of one extra monthly payment each year. This may save you thousands, or tens of thousands of dollars in interest over the life of your mortgage.
You may be able to select from the following payment frequency options:
monthly—1 payment per month
semi-monthly—2 payments per month (monthly payment ÷ 2)
biweekly—1 payment every 2 weeks (monthly payment X 12 ÷ 26)
weekly—1 payment per week (monthly payment X 12 ÷ 52)
accelerated biweekly—1 payment every 2 weeks (monthly payment ÷ 2)
accelerated weekly—1 payment per week (monthly payment ÷ 4)
Open mortgages typically have higher interest rates than closed mortgage with similar terms. They allow more flexibility if you plan on putting extra money toward your mortgage.
An open mortgage may be a good choice for you if you:
plan to pay off your mortgage soon
plan to sell your home soon
think you may have extra money to put toward your mortgage from time to time
Closed mortgages typically have lower interest rates than open mortgages with similar terms. There’s usually a limit on the amount of extra money you may put toward your mortgage each year.
Your lender includes this in your mortgage contract and calls it a prepayment privilege. Not all lenders allow prepayment privileges on closed mortgages. These privileges vary from lender to lender.
A closed mortgage may be a good choice for you if:
you plan to keep your home for the rest of your mortgage term
the prepayment privileges provide enough flexibility for the prepayments you expect to make