Home owners who have lots of equity in their house, might be looking for ways to get access to that equity without having to re-finance their house every time a need arises for some additional money.
A mortgage with a line of credit portion is a great product for some. Here are some typical reasons why you might want to get access to your home equity: buy investments, stocks, bonds, RRSPs, renovate your home, pay for education costs, or other reasons.
The diagram below shows a total home value of $380,000 divided into three sections: the top portion means that 20% of your home value must remain as equity and cannot be financed. The middle portion represents the line of credit portion. The line of credit portion can go up to 80% of the value of the home. The bottom portion is your actual mortgage loan portion today, that you decide to convert over, when you move into this product.
Using the example of a home owner who has a home valued at $380,000……This client has a mortgage balance right now, with a lender, at $210,000. By moving into the mortgage + line of credit product, the current mortgage amount of $210,000 is set up as either a FIXED mortgage, or a VARIABLE rate mortgage.
The borrower can then use anything over this set mortgage amount, all the way up to 80% of the home value.
The home Value for this illustration is $380,000
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20% cannot be financed
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$ 94,000
the MAX Line of Credit portion
Variable rate calculated at
**Prime + 1%
**2.25% + 1% = 3.25%
Line of credit can be increased
up to 80% of the value of the home
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current Mortgage balance today
$ 210,000
Variable rate / 5 year term
Or
Fixed Rate at a 2, 3, 4, 5, 7, 9, or 10 year term
5 yr fixed = 3.69%
or
variable =
**Prime 2.25% + 0.80% = 3.05%
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It is important to mention……. this kind of mortgage product requires a very disciplined borrower as reckless spending or improper investing strategies, with the line of credit portion, could have a very negative outcome: a higher debt and possibly the inability to re-pay the debt.
NOTE: Mortgage rates are effective as of May 17, 2009. **The variable rate amount can go up or down depending on current posted Prime Rate. Mortgage rates are subject to change without notice.
This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.
Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.
You can contact Elizabeth directly by phone at (905) 510-5785
by email at eblair@mortgageedge.ca
or you visit her website at: www.missmortgage.ca
Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca
Lic # M08005880 / Brokerage Lic # 10680
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