What is a home equity of line of credit?
A home equity line of credit (HELOC for short) 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’s home equity line of credit is referred to as the RBC Homeline Plan.
What is the RBC Homeline Plan interest rate?
At RBC, you have the option to go fixed or variable. As of September 25, 2013, the 5-year fixed rate for the RBC Homeline Plan is 3.89%. However, the 5-year variable rate for this product is RBC Prime + 0.00%. RBC’s Prime is currently at 3.00%, so this would make your rate 3.00%. It’s important to note, however, that the relationship of a variable rate HELOC can be changed by RBC at anytime. For example, RBC could increase this to Prime + 1.00%, bringing it up to 4.00% respectively.
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.
- 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 under 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.
- You can also choose an amortization period of up to 30 years, if your mortgage is put into the RBC Homeline Plan.
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
Then, you must 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 Final Word
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 an experienced mortgage broker and come up with an option that will work best with your financial situation.