What is a home equity of line of credit?
A home equity line of credit (HELOC) is a revolving line of credit that leverages the equity in your home. As you build up more equity in your home, you can also access more of it through your HELOC – of course, so long as it does not exceed 65% of the value of your home. Scotiabank’s home equity line of credit is referred to as their STEP – Scotia Total Equity Plan.
What is the Scotia Total Equity Plan interest rate?
With the STEP, you have the option to go fixed or variable. As of September 30, 2013, the 5-year fixed rate for the STEP is 3.99%. However, the 5-year variable rate for this product is as low as 3.10%. However, it’s important to remember with any variable rate mortgage product that rates would go up if Prime was ever increased.
Once you qualify for the Scotia Total Equity Plan, you can borrow anywhere from $0 up to 65% of the value of your home. It’s important to note, however, that your total home debt (mortgage + HELOC) cannot exceed 80% of the value of your home. In order to borrow up to 80% of the value of your home, your mortgage would need to be paid off in full.
- You can access funds at an ATM, online, by phone or at any Scotiabank branch location.
- You can get a variable rate lower than any personal line of credit.
- You also have the option to go with a fixed rate.
- Your interest is calculated on the daily balance, so you will only pay interest on the amount you use.
- Your monthly payment is simply the interest charge.
- There are no prepayment penalties. You can pay off the full amount owing whenever you want without being charged any fees.
The value of your home = $250,000
Your outstanding mortgage balance = $150,000
The maximum allowable total home debt would be calculated as:
$250,000 x 80% loan-to-value ratio = $200,000
Then, you must subtract the outstanding balance on your mortgage to get the total allowable line of credit amount:
$200,000 – $150,000 = $50,000
Now, you still need to make sure that $50,000 doesn’t exceed 65% of your home’s value. To be sure, simply divide the HELOC amount by the value of your home:
$50,000 / $250,000 = 20%
In this example, you could access $50,000 through a HELOC, which only amounts to 20% of your home’s value.
The Final Word
The Scotia Total Equity Plan is a mortgage product that helps you access the equity in your home. You can then use this equity to finance a renovation project, invest in your retirement or even purchase a second property. A HELOC can also be used to pay off high interest rate debts, such as credit cards or auto loans. Before deciding to leverage your home, you should speak with an experienced mortgage broker and come up with an option that will work best with your financial situation.