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. Desjardins’ home equity line of credit is referred to as their Versatile Line of Credit.
What is the Desjardins Versatile Line of Credit interest rate?
The interest rate for the Desjardins Versatile Line of Credit is based on Prime rate, which is currently 3.00%. Desjardins does not publish the interest rate on their website and, after speaking with two advisors, Desjardins only offered that the rate varies on an individual-to-individual basis.
Because the variable interest rate is dependent on Prime rate, if Desjardins were to offer you a rate of Prime + 1.50%, your interest rate on a Versatile Line of Credit would be 4.50%.
Once you qualify for the Desjardins Versatile Line of Credit, you can borrow anywhere from $25,000 up to 65% of the value of your home. It’s important to note 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 Desjardins branch location.
- You can get a variable rate lower than any personal line of credit.
- Your interest is calculated on the daily balance, so you will only pay interest on the amount you use.
- The repayment frequency is flexible, with daily, weekly or monthly options to choose from.
- You can also choose to repay a percentage of the monthly balance, a fixed or variable amount, or just the monthly interest.
- 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 = $350,000
Your outstanding mortgage balance = $175,000
The maximum allowable total home debt would be calculated as:
$350,000 x 80% loan-to-value ratio = $280,000
Then, you must subtract the outstanding balance on your mortgage to get the total allowable line of credit amount:
$280,000 – $175,000 = $105,000
Now, you still need to make sure that $105,000 doesn’t exceed 65% of your home’s value. To be sure, simply divide the HELOC amount by the value of your home:
$105,000 / $350,000 = 30%
In this example, you could access $105,000 through a HELOC, which only amounts to 30% of your home’s value.
The Final Word
The Desjardins Versatile Line of Credit is a mortgage product that can help you access funds to finance a renovation project, invest in your retirement fund 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.