HELOC sand mortgages have important differences. We’ve contrasted certainaspects of HELOCs and mortgages before, but here’s a summary of thedifferences for reference.
|Allow you to continuously borrow and re-borrow up to your available limit (i.e., they are “revolving”).
|Can only be paid down (unless they’re readvanceable).
|Haverates that are not guaranteed for the life of your term. Lenders canincrease the rate premium they charge on HELOCs at any time. (By theway, Kudos to lenders like FirstLine, National Bank and Canadian Tire,who have refused to raise LOC rates on existing customers.)
|Come in two flavours:
Fixed…with mortgage rates that are guaranteed for the life of the term.
Variable…which have guaranteed spreads from prime for the life of the term (e.g., prime + 0.25% or prime – 0.50%).
|Are fully open.
|Are usually closed but can be open.
|Require 20% equity
|Often require just 0-5% equity
|Offer interest-only payments
|Don’t generally allow interest-only payments
|Are usually reported to the credit bureaus—which can negatively impact your score (only a handful of HELOCs are not reported)
|Are usually not reported to credit bureaus, and typically don’t harm your score even if they are.
|Are technically callable by the lender—even if you make your payments on time.
|Mortgages cannot be called as long as you abide by the terms of the mortgage.
|Have higher interest rates, as of today
|Have notably lower interest rates, for the most part
HELOCs are generally most suited to very financially stable individuals who value liquidity (quick access to their home equity).
Keepin mind, many of the things that make HELOCs unique can be either abenefit or a disadvantage, depending on the borrower. If you need helpdeciding if a HELOC is right for you, get some free advice from amortgage professional.