Q. What is a home equity of line of credit?
A home equity line of credit (HELOC) 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 doesn’t exceed more than 65% of the value of your home. BMO’s HELOC product is called the Homeowner ReadiLine.
Q. What is the BMO Homeowner ReadiLine interest rate?
There are a number of interest rates available. Unlike most of the other HELOCs on the market, the interest is calculated monthly, not daily. These are the rates as of Nov. 27, 2017:
|Fixed rate||One year (closed)||3.29%|
|Fixed rate||Two years (closed)||3.29%|
|Fixed rate||Three years (closed)||3.89%|
|Fixed rate||Four years (closed)||4.24%|
|Fixed rate||Five years (closed)||4.99%|
|Fixed rate||Six years (closed)||5.34%|
|Fixed rate||Seven years (closed)||5.5%|
|Fixed rate||10 years (closed)||6.3%|
|Variable rate||Five years (closed)||3.35%|
Q. What are the details of the plan?
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) can’t exceed 80% of the value of your home.
Q. What features does the BMO Homeowner ReadiLine have?
These are the features of the product:
- 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; and
- There are no prepayment penalties—you can pay off the full amount owing whenever you want without being charged extra fees.
Q. How much can I borrow?
Let’s do a sample calculation:
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 can access $110,000 through a HELOC, which equals 24% of your home’s value.
The bottom line
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, including a car loan or any credit card debt. Before deciding to leverage your home, you should speak with a mortgage broker and come up with an option that will work best with your financial situation.