Q. What is a home equity of line of credit?
A home equity line of credit (HELOC) is a revolving line of credit that allows you to borrow the equity in your home, often at a much lower rate than a traditional line of credit. A HELOC cannot exceed more than 65% of the market value of your home, and together with your mortgage can’t add up to more than 80% of the market value of your home. RBC Royal Bank’s home equity line of credit is called the RBC Homeline Plan.
Q. What is the RBC Homeline Plan interest rate?
At RBC, you have the option to go fixed or variable. As of Nov. 23, 2017, the five-year fixed rate for the RBC Homeline Plan is 3.39%. However, the five-year variable rate for this product is RBC Prime + 0%.
Q. What are the details of the plan?
Once you qualify for the RBC Homeline Plan, you can borrow anywhere from $5,000 up to 65% of the value of your home. Again, remember that your total home debt (mortgage + HELOC) cannot exceed 80% of the value of your home.
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Q. What features does the RBC Homeline Plan have?
These are the features of the plan:
- You can access funds from your credit line through online banking, ATMs, any RBC branch, or by writing a cheque;
- You can get a variable rate lower than any traditional line of credit;
- You also have the option to split your total home debt and put some at a fixed rate and some under a variable rate;
- You only pay interest on the amount of money you have borrowed;
- You can choose from several payment options, including monthly, semi-monthly, bi-weekly, weekly, accelerated bi-weekly and accelerated weekly payments; and
- You can also choose an amortization period of up to 30 years if your mortgage is put into the RBC Homeline Plan.
Q. How much can I borrow?
Let’s do a sample calculation:
The value of your home = $400,000
Your outstanding mortgage balance = $200,000
The maximum allowable total home debt would be calculated as:
$400,000 x 80% loan-to-value ratio = $320,000
You must then subtract the outstanding balance on your mortgage to get the total allowable line of credit amount:
$320,000 – $200,000 = $120,000
Now you still need to make sure that $120,000 doesn’t exceed 65% of your home’s value. To be sure, simply divide the HELOC amount by the value of your home:
$120,000 / $400,000 = 30%
In this example, you could access $120,000 through a HELOC, which only amounts to 30% of your home’s value.
The bottom line
The RBC Homeline Plan is a mortgage product that can help you access the funds you need to finance a renovation project, pay for school or even purchase a second property. A HELOC can also be used to pay off high-interest debts, such as personal loans or credit cards. Before deciding to leverage your home, you should speak with a mortgage broker and come up with an option that works best for your financial situation.
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