Q. What is a home equity of line of credit?
A home equity line of credit (HELOC) is a revolving line of credit that leverages the equity in your home. As you build up more equity in your home, you can also access more of it through your HELOC—of course, so long as it does not exceed 65% of the value of your home. Scotiabank’s home equity line of credit is called the Scotia Total Equity Plan (STEP).
Q. What is the Scotia Total Equity Plan interest rate?
With the STEP, you have the option to go fixed or variable. As of Sept. 29, 2017, the posted five-year fixed rate for the STEP is 4.94%. However, the five-year variable rate for this product is as low as 3.4%. However, it’s important to remember with any variable-rate mortgage product that rates would go up if the prime rate increases.
Q. What are the details of the Scotia Total Equity Plan?
Once you qualify for the Scotia Total Equity Plan, you can borrow 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. In order to borrow up to 80% of the value of your home, your mortgage will need to be paid off in full.
Q. What are the features of the Scotia Total Equity Plan?
These are the features of the plan:
- You can access funds at an ATM, online, by phone, or at any Scotiabank branch
- You can get a variable rate lower than any personal line of credit
- You also have the option to go with a fixed rate
- Your interest is calculated on the daily balance so you’ll only pay interest on the amount you use
- Your monthly payment is simply the interest charge
- There are no prepayment penalties; you can pay off the full amount owing whenever you want without being charged any fees.
Q. How much can I borrow?
Let’s do a sample calculation:
The value of your home = $250,000
Your outstanding mortgage balance = $150,000
The maximum allowable total home debt would be calculated as:
$250,000 x 80% loan-to-value ratio = $200,000
Then you must subtract the outstanding balance on your mortgage to get the total allowable line of credit amount:
$200,000 – $150,000 = $50,000
Now you still need to make sure that $50,000 doesn’t exceed 65% of your home’s value. To be sure, simply divide the HELOC amount by the value of your home:
$50,000 ÷ $250,000 = 20%
In this example, you can access $50,000 through a HELOC, which only amounts to 20% of your home’s value.
The bottom line
The Scotia Total Equity Plan is a mortgage product that helps you access the equity in your home. You can then use this equity to finance a renovation, invest in your retirement, or 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 a mortgage broker and come up with an option that will work best with your financial situation.
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