If you have equity in your home, a HELOC can be a lower-interest way to access funds for those important things that come up, like home upgrades or consolidating debt.

A HELOC (Home Equity Line of Credit) is considered a second mortgage and differs from a traditional mortgage. It is similar to a credit card in that the entire loan isn't advanced up front, but you use the line of credit to access funds to the allowable limit. Like a credit card you can access what you have repaid thus the name revolving line of credit. Your repayment amount is your withdrawal amount plus interest or minimum interest only payment amount like a credit card. You can make payments of principal and interest at any time without a penalty. The maximum loan to value for a HELOC is 65% of the value of your home.

Generally, you can access 65% – 80% of the value of your home. It is important to remember that most lenders will consider your credit score and any mortgages you currently have when approving your Home Equity Line of Credit application. For Example; If your home is valued at $400,000 and your existing mortgage balance is $200,000, the maximum Home Equity Line of Credit limit from most financial institutions will be set at $120,000 ($400,000 x 80% = $320,000 less your mortgage balance of $200,000).

In addition to being able to access the money you have paid back. Another important difference with a HELOC is that the rate is a variable rate and tied to your bank's prime rate and can change up or down depending on the rate set by the Bank of Canada.

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