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The Definitive Guide To HELOC's In Canada (Home Equity Line Of Credit) - YouTube
Channel: Nolan Matthias
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so one thing i swore i would never do
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was start a video with
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so i get asked all the time i mean i
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literally watched a video yesterday from
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a youtuber
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where the guy said you know i get asked
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all the time
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what's your net worth and quite frankly
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nobody's really asking him his net worth
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because quite frankly most people
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probably don't care
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and secondly guess what that's a rude
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question to ask and most people in
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society are not going to ask it but
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here's what i've noticed is now that
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we're at 14 000 subscribers we are
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getting
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asked questions quite frequently and one
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of the ones
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that we get asked most often is about
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helocs or home equity lines of credit
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so today i wanted to jump in and give
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you the definitive guide
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to home equity lines of credit and i'm
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going to cover
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everything from what they are to how you
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can use them a to z
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but before we get into it doing that
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favor hit that subscribe button hit that
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notification bell please hit that like
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button so more people like you can see
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this video
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and don't forget about our race to 25
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000 subscribers
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when we get there we're gonna give one
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lucky subscriber
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five thousand dollars to put towards
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their resp our
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rsp tfsa to pay down their mortgage or
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if they want
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they could even use it to pay down their
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home equity line
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of credit the definitive guide on how to
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manage your credit
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product penalty price it's never been
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more important to get your mortgage
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right
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okay so let's get into it let's discuss
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home equity lines of credit
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this is legitimately one of the most
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frequently asked questions in the
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comments section
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and finally i'm going to get around to
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making the video on it and again
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this is the definitive guide so there's
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nothing extra that you don't need
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there is nothing missing at least i hope
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there's nothing missing i don't think
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there will be anything missing
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but this is everything you know need to
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know about how to get a heloc in canada
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and let's start with what a heloc is
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it is a home equity line of credit so in
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other words
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it uses the equity in your home and
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makes it available to you
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typically on a revolving line of credit
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i'll get to what that means in a little
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bit
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so that you can borrow that money and
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use it how you see fit
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and one of the most commonly misunder
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thing
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understood things about home equity
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lines of credit is yes it is
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in fact a mortgage so when you go to
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apply for a mortgage
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and somebody says do you have a mortgage
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on an existing property
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and you have a home equity line of
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credit but not what you think is a
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mortgage
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chances are you do have a mortgage
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because home equity lines of credit
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if they are secured against your
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property which they all are are
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absolutely mortgages
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anytime you borrow money and it is
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secured against
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your property so in other words you give
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your your property as collateral for the
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money that you've borrowed
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it is a mortgage and a home equity line
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of credit
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is no different now typically they're
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registered as collateral mortgages which
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is a different type of mortgage
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what it means is that it can fluctuate
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with
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up and down as you draw money off of it
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and pay it back
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unlike a normal conventional mortgage
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where you simply are making payments on
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a regular basis and the principal
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amount principal amount is getting paid
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down as you go
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now home equity lines of credit become
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available to you when you have more than
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20
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equity in your property so that is the
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value
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of your property less the amount of
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money that you owe
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is greater than 20 of the total value
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so for a very simple example of that
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let's say you have a 500 000
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property and you owe 400 000
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on it you don't qualify for a home
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equity line of credit because
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you've only got twenty percent equity
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but the second that you have
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more than a hundred thousand dollars in
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equity available
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then you can borrow that money as a home
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equity line of credit
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and depending on the product and the
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place that you choose to get it from
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you can get it in different types of
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products
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like re-advanceable lines of credit or
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just normal
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second lines of credit which again i'll
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get to momentarily
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no your mor your home equity line of
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credit in canada
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can be up to 65 of the total value of
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your property
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now you're saying hold on a second nolan
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you just said you can only go up to
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or once you have 20 equity you can use
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that as a line of credit well
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yes what you can do though is you can
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have up to 65
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of the value property in line of credit
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and then you can have another 15
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in a normal mortgage for a total
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borrowing limit
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of 80 of the value of your property
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now most home equity lines of credit are
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interest-only payments there are some
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out there
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like for example the tangerine mortgage
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or the titan during line of credit story
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is at prime plus 0.1 percent it's priced
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competitively
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competitively against all the other
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lines of credit in canada however it
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doesn't have an interest-only payment it
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has a fixed payment
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which is why you're getting a slightly
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lower interest rate now
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the conventional lines of credit that
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are typically available at the big banks
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for companies like mcapp
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they are typically interest only which
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means you only pay you're only obligated
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to pay the interest on the amount that
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you have actually borrowed
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typically lines of credit for
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interest-only style lines of credit
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are priced at prime plus 0.5
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to prime plus one so right now as of
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this filming
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home equity lines of credit are or sorry
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as right now as of this filming prime
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rate is at 2.45
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so you're likely going to pay somewhere
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between 2.95
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and 3.45 now what is the difference
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between
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0.5 and and 1 as far as the premium on
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over prime well that all comes down to
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how big the line of credit is
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and how good of a borrower you are the
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typically the bigger the line of credit
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and the stronger the client the lower
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the interest rate that they will get
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this includes up to doctors and lawyers
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who will typically pay even lower rates
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than this
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because they are deemed to be
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significantly stronger borrowers
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and therefore typically get offered even
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lower rates for professional lines of
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credit
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now one thing that's important to note
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is just like a variable rate
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the rates will adjust with prime so as
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the bank of canada moves interest rates
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up and down
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your home equity line of credit rate
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will adjust now your
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your premium won't change so your prime
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plus a half or your
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prime plus one percent won't change
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however your
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overall rate will change as prime
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adjusts so if prime goes up to 2.95
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percent
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well guess what if you're prime plus one
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your interest rate's going to go from
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3.45 to
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three point nine five percent
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accordingly
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now the key thing here is you only pay
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for lines of credit when you're using
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them
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so in other words if you have a hundred
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thousand dollars in line of credit
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available to you
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but you aren't using it you haven't
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drawn any of it down
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well you don't pay anything on it but as
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soon as you borrow
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you start having to pay interest so if
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you
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have borrowed fifty thousand of the
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hundred thousand dollars you pay
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interest on the fifty thousand dollars
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that you borrowed
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and as you pay it down you pay less
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interest and as you borrow more you pay
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more interest but the key thing here is
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you only pay interest when you are using
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the funds
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and a lot of people will have a home
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equity line of credit but won't
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necessarily use it they'll sit
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they'll leave it there for as a rainy
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day fund or as
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a as a tool for investments without
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actually drawing it down
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we recommend that for people who are
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very very good at managing their credit
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uh and the other thing that we often
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recommend that people do is once they've
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paid off their mortgage completely we
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often recommend
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that they put a line of credit on their
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property so that their title isn't free
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and clear
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because it has some benefits with
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respect to preventing
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preventing title fraud and having
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somebody try to register a mortgage
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against your property
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now home equity loans credit can be paid
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down and redrawn so
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if you pay off a home equity line cut it
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down to zero you can always go back and
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reborrow it so
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sometimes people who are business for
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sale for example
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they will use their home equity lines of
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credit in order to
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you know pay them down as fast as they
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can use extra cash that they have on
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hand in their business to pay down their
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debts
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and then re-borrow as necessary to try
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to minimize their interest costs
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now home equity lines of credit can be
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combined with
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re with a mortgage which is often what's
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called a re-advanceable
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line of credit so in this scenario and
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this is what people use for things like
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the smith maneuver which you can go and
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look at other videos that we've made on
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the smith maneuver what happens is
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as you pay down your mortgage the
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principal on your mortgage so every
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month you have a mortgage payment part
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of that goes to principal
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as you pay down the principal on your
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mortgage a line of credit becomes
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available to you and the limit
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increases as you pay down more and more
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and more of your mortgage
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that's what we use personally because we
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run a small business
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every time we make a payment on our
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mortgage we automatically get that
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available to us in the line of credit so
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every month we pay down about two
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thousand dollars in principle on our
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mortgage
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we get two thousand dollars available to
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us in a line of credit now
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whether we you use that or not is up to
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you but this is the tool that people are
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using when they do things like the smith
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maneuver
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in order to make their mortgages more
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tax deductible by paying down the
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mortgage in advance
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borrowing the money back off of the line
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of credit and then
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using that to purchase investments
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thereby making the line of credit tax
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deductible
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now as far as home equity lines of
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credit go there is one that we recommend
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most frequently now i'm
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probably going to get criticized in the
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comments section on this
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because scotiabank is the only big bank
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in the mortgage broker channel that
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offers a home equity line of credit
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and people will suggest that i'm saying
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that the scotiabank home equity line of
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credit
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is the best one because it's the only
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one that's available in the broker
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channel
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other than the mcat product that is also
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a very very good product
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but here's the reality of it my mom used
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to bank
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or used to work for bank montreal for 47
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years my father worked there
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we have accounts at rbc we have accounts
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at td
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we have accounts at pretty much every
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major lender out there we have banked at
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every big
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bank in the industry and here's the
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reality of it is
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we can go anywhere to get our mortgage
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we understand mortgages we understand
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the industry
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and we still choose to get our home
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equity lines of credit
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at scotiabank and the reason why is
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quite simply that the product offering
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there along with the mortgage offering
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and the ability to re-advance the line
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of credit there
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as well as the the pre-payment
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privileges that allow us to go and throw
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twenty percent at our mortgage and then
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have it available to us
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on a line of credit just in case we
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overspent you can go back and watch my
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video on our biggest mortgage mistake
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uh that where we paid off too much of
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our mortgage
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and ran into a cash issue well because
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of the way the scotia bank mortgage is
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set up and the home equity line credit
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is set
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up there we will never ever ever run
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into that issue
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so i unequivocally believe that the
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scotia bank home equity line credit is
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by far the best in the industry not
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because that's the one that's available
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to us to sell
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but because it legitimately is at least
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in my opinion combined with their
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mortgage and the prepayment privileges
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and all the tools that you would need in
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order to take full advantage
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of a heloc is without a doubt the best
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product in the industry
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now the question then becomes what can
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you use helocs for what are they good
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for well
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first and foremost really really great
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products for
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paying down debt paying down additional
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credit cards paying down non-secured
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lines of credit which are typically
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priced at a higher interest rate
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just basically paying down anything
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that is not at a super low interest rate
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and
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they're also really great for making
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investments so if you want to do some
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leverage investing now keep in mind
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leverage investing smith maneuver
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anytime you buy
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any sort of investment with money that
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is borrowed
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you are inherently increasing the risk
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of that investment
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sometimes three to five times the risk
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as a result of borrowing the money
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so i don't necessarily recommend
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leveraged investing but if you want to
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borrow money in order to invest home
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equity lines of credit are typically
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the best way to do that and in my
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opinion again the scotiabank
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step product just from the virtue of the
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fact that you can take a line of credit
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and switch it into a variable rate
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mortgage at a lower interest rate and
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and just
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take a portion of a line of credit and
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switch it into a normal mortgage
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is one of the best features of that
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product because then
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you're basically creating a silo of that
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particular amount of money that is
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clearly in a hundred percent
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used for a particular investment and
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therefore becomes tax deductible make
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sure you get your accountant's advice on
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that
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but that's one of the things that they
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always want to make sure is that the
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money that you're borrowing for
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investments
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is always separated from the money that
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you're borrowing for things that aren't
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investments
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you can also use home equity lines of
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credit to fund businesses
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as a self-employed person we do that
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quite frequently uh sometimes to a fault
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and this is very common in the business
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world to use the equity in a house in
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order to
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pay off or in order to inject money
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into a business and then the other big
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thing you can use them for is
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as a down payment for another property
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whether you're keeping a property as a
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rental
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and moving into another one and you want
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to borrow the equity out of
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your existing property in order to
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purchase that new property or whether
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you want to purchase rental
[800]
properties and you want to use some of
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the equity in your existing property to
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purchase those new properties they
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make a great tool for purchasing more
[808]
real estate
[809]
again that's leveraged investing so you
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need to be very careful about it
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especially when you're boring money
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to buy an investment on your principal
[816]
residence you always want to make sure
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that your principal residence is safe
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and secure
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and that you're not putting it at risk
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of losing it but it is a great tool for
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purchasing additional properties if that
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is what you choose to do
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and last but not least you can always
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use a line of credit for bridge
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financing
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so let's say you have a property that's
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completely paid off and you want to
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purchase a new property
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but you don't want to sell the one
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you're living in prior to taking
[838]
possession of the new one
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you can use a home equity line of credit
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in order to borrow the funds off of your
[843]
existing property
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and purchase the new one so really great
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tool for doing that and
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actually a far cheaper tool than getting
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something like private bridge financing
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so you know home equity lines of credit
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are an extremely
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powerful tool i will caution you there
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are some videos out there on the
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internet
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that suggest that you can use a home
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equity line of credit to pay your
[863]
mortgage off significantly faster
[865]
be very careful with that because a lot
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of that is
[868]
just poor numbers and really we have yet
[872]
to find anybody who has used that
[873]
strategy successfully
[875]
if you have used that strategy
[876]
successfully go ahead leave me a comment
[878]
in the comment section below or reach
[880]
out to me via our website i would
[882]
definitely
[882]
love to hear what you have to say about
[884]
that but our experience is that when
[886]
home equity lines of credit
[887]
are used in order to try to pay off a
[889]
mortgage faster well
[891]
typically people just end up in more
[893]
debt rather than less debt
[894]
so if you found this video useful do me
[896]
that favor hit that subscribe button
[898]
hit that notification bell please hit
[899]
that like button so more people like you
[900]
can see this video
[901]
check the description below for any
[903]
courses with respect to how to get a
[904]
lower interest rate
[906]
first-time homebuyer courses and all the
[908]
other things that go along with that if
[910]
you want to apply to get a home equity
[911]
line of credit you can also do that
[912]
description in the links below
[914]
and hopefully we'll see you on the very
[916]
next video cheers
[929]
you
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