What is a home equity of line of credit?
A home equity line of credit (HELOC for short) is a loan that leverages the equity in your home. The HELOC functions like a revolving line of credit where you can choose when and how much money to withdraw, so long as the amount does not exceed more than 65% of the value of your home. BMO’s home equity line of credit is referred to as the Homeowner ReadiLine.
What is the BMO Homeowner ReadiLine interest rate?
There are a number of interest rates* available. According to BMO’s site, rates are subject to change without notice. And unlike most of the other HELOCs on the market, the interest is calculated monthly – not daily.
*Rates as of September 30, 2013.
Once you qualify for the BMO Homeowner ReadiLine, 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.
- You can access the funds at an ATM, online, by phone or by cheque, or at any BMO branch location.
- You can access funds up to your revolving credit limit as long as you own your home.
- You can get a variable rate lower than any personal line of credit.
- Your interest is calculated on the monthly balance, so you will only pay interest on the amount you use.
- The repayment frequency is flexible. You can pay as little as the monthly interest charge or as much as you want to try and pay it down.
- There are no prepayment penalties. You can pay off the full amount owing whenever you want without being charged extra fees.
The value of your home = $450,000
Your outstanding mortgage balance = $250,000
The maximum allowable total home debt would be calculated as:
$450,000 x 80% loan-to-value ratio = $360,000
Then, you must subtract the outstanding balance on your mortgage to get the total allowable line of credit amount:
$360,000 – $250,000 = $110,000
Now, you still need to make sure that $110,000 doesn’t exceed 65% of your home’s value. To be sure, simply divide the HELOC amount by the value of your home:
$110,000 / $450,000 = 24%
In this example, you could access $110,000 through a HELOC, which only amounts to 24% of your home’s value.
The Final Word
The BMO Homeowner ReadiLine is a mortgage product that can help you access the money you need to make an investment, buy a second car or even purchase a second property. A HELOC can also be used to pay off any high interest debts you may have, include a car loan or any credit card debt. 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.