One of the most significant upsides to buying a home (besides having a place of your own) is that every month when you make your mortgage payment, you’re building equity in your home. Equity is the difference between the home’s value and the outstanding mortgage. You can use your home’s equity in several ways, including to fund your retirement or purchase your next home. Most of those uses require you to sell your house to access your equity, but not all!
What is a home equity line of credit?
A home equity line of creidt or HELOC, is a revolving line of credit that uses the equity in your home as collateral for the loan. The maximum size of your HELOC is limited by how much equity you have in your home. Because an asset secures it, the interest rate is often lower than unsecured lines of credit. A HELOC is a revolving line of credit, meaning you don’t need to use the entire balance at once, and you can repay it at your own pace.
You can use a HELOC for home renovations, down payments on vacation homes, post-secondary school tuition, to pay down high-interest debt, and other major life events. You can open a home equity line of credit through Scotiabank, and this product is called the Scotia Total Equity Plan (STEP).
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How much can I borrow on the Scotia Total Equity Plan?
With the Scotiabank Home Equity Line of Credit, you can borrow up to 65% of the value of your home. However, the total home debt (your mortgage + your HELOC) can’t exceed 80% of the value in your home.
For example, let’s say the value of your home is $400,000, and you have a $220,000 outstanding mortgage. The total maximum amount you can borrow, including both your mortgage and your HELOC is:
$400,000 x 80% = $320,000
Once you subtract the $220,000 outstanding mortgage, you’ll see that the maximum possible size of your HELOC is $100,000. Next, you’ll need to make sure the $100,000 doesn’t exceed 65% of the value of your home. To be sure, simply divide the HELOC by the total value of your home:
$100,000 / $400,000 = 20%
In this example, the $100,000 you can access through your HELOC only amounts to 20% of the value of the home.
As the example above shows, you may be able to pay off a large sum of money if you’ve been diligently paying off your mortgage. This large amount, combined with the lower interest rates than regular lines of credit, make HELOCs an attractive option for larger purchases.
What is the Scotia Total Equity Plan interest rate?
With the Scotiabank secured line of credit, you have the option to choose between a fixed or variable interest rate. A fixed interest rate (as its name suggests) never changes. A variable interest rate will go up and down depending on market conditions. Variable interest rates are expressed as prime plus or minus a percentage or fraction of a percentage point.
As of March 12th, 2019, the posted five-year fixed rate for the STEP is 4.45% (prime + 1.00%). However, it’s important to remember with any variable-rate mortgage product that the interest rates will fluctuate as the prime rate increases or decreases.
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How to access the Scotia total equity plan
It’s simple to use the STEP. If you’re a Scotia mortgage customer, your STEP HELOC is available through the online portal. You can opt to withdraw the available credit as a lump sum, but you don’t have to withdraw the full amount at once. As a revolving line of credit, you can use as much or as little of your HELOC as you want, and you’ll only pay interest on the amount that you borrowed. When you use your HELOC, you’ll make monthly payments like a regular line of credit. You can opt to make interest-only payments, or you can be diligent and repay the balance in full.
If you’re not a Scotia mortgage customer but are looking for a mortgage with a HELOC, then head to our HELOC comparison page to find the right one for you.
What are the pros and cons of the Scotia Total Equity Plan?
The Scotiabank HELOC is an excellent way to access the equity of your home, but it’s not perfect. Here are the pros and cons.
- Access funds at an ATM, online, by phone, or at any Scotiabank branch
- Variable interest rates are lower than personal lines of credit
- Fixed rates offer steady, predictable interest charges
- Interest is calculated daily, so you’ll only pay interest on what you use
- Pay as little as the monthly interest, or pay back the entire balance, your choice
- No prepayment penalties or fees for full repayment
- Scotiabank will register a lien on your home, which means if you can’t make your payments and default on your loan, they can seize your home for payment
- Some homeowners find it difficult to manage access to such a large amount of cash and may find themselves in too much debt
- Variable interest rates fluctuate with Canada’s prime rate, meaning your monthly payment could increase unexpectedly
The bottom line
Home equity lines of credit help you access the equity in your home without having to sell. You can use this equity to finance a renovation, purchase a second property, or invest in your child’s education. The Scotia Total Equity Plan is a highly ranked HELOC from one of the reputable Big Five banks and is a flexible way to help you achieve your life goals.
If you’re considering leveraging your home, consider speaking with a mortgage broker to make sure a HELOC is the best choice for your financial situation. If you’re in the market for a mortgage with a HELOC, your best best is to compare HELOC mortgage rates from providers near you.
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