If you’ve been listening to radio or TV ads, you’ve no doubt heard about debt consolidation services. These companies advertise the ability to reduce your debt quickly and painlessly. For Canadian homeowners, these services are often not the best way to consolidate and pay down debt. Instead, tapping into your home’s equity can provide a great way to consolidate debt, pay for major expenses, or just have extra cash in your accounts. A home equity line of credit, HELOC Toronto, is a great way to tap into your Toronto home’s value. Considering the average Toronto home price is now over $800,000 [https://www.globenewswire.com/news-release/2019/03/05/1747791/0/en/TREB-Releases-Resale-Market-Figures-as-Reported-by-GTA-Realtors.html] if you even own 50% of your $800k house, you could have access to a line of credit of $240,000. Imagine what you could do with access to that sizeable sum of money.
The best part is that HELOC rates are still incredibly low. You can get access to your money at an interest rate that is as low as 4.2%. Suppose you have $50,000 in credit cards at a rate of 15% APR. Suppose you also have a $30,000 car balance that runs at 6% interest. Finally, let’s assume that you want access to $20,000 in cash to fund a dream vacation.
The interest alone on each of those payments could be on the order of $1,000 per month or $12,000 annually. With a HELOC Toronto, you could get access to $100,000 for as low as 4.2%. The annual interest on that entire loan would be just $4,200. This represents a saving of about $8,000 per year on interest alone. HELOCs can also have interest-only payments, allowing you to pay down principal when you can afford to do so. You are not obligated to make a principal contribution each month.
The benefits of getting a HELOC for your Toronto home are apparent. Whether you’re looking to get rid of your debt or fund a large purchase, borrowing against your home’s equity is the obvious choice. Unfortunately, when many people try to get a HELOC Toronto, they find that obtaining one is a little more tricky than it appears. Fortunately, at Citadel Mortgages, we have the ultimate guide to getting a HELOC in Toronto at the best rates and terms.
I’m Convinced A HELOC Toronto Will Help Me, What Do I Need For One?
To qualify for a HELOC in Canada, you will need: “an acceptable credit score, proof of sufficient and stable income, and an acceptable level of debt compared to your income.” [https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html]
In general, a credit score above 600 will qualify you for a HELOC Toronto. However, you likely will not be given the best interest rates if your credit score is 600. The lowest percentages (like 4.2%) are reserved for people with top credit scores. Even if you don’t qualify for the perfect rate, don’t discount the value of the line of credit! There can still be a lot of benefit to taking the debt off of your credit cards and moving it over to a HELOC. If your revolving credit percentages are really high (>40%), those debts will significantly impact your credit score. Using our example above, getting a $240k line of credit and only using $100k while taking debts off the credit cards will boost your score in the long run. Plus HELOC rates are not as high as credit card interest rates!
The guidelines for sufficient and stable income are that banks must conduct income assessments that “reflect the stability of the borrower’s income.” Also, “temporarily high incomes (e.g., overtime wages, irregular commissions and bonuses) should be suitably normalized or discounted.” . In essence, banks need to count the income that you would be reasonably expected to receive, not one-off bonuses, and other windfalls of money. If you win the lottery one year, while that’s awesome, it won’t be counted towards your HELOC application!
Finally, an acceptable level of debt compared to income is defined both by the GDS (Gross Debt Service) and the TDS (Total Debt Service) . The GDS is the amount that your mortgage would be relative to your income. If you make $5,000 per month and your mortgage payment is $1,000, your GDS is 20%. Guidelines state that this must be below 35% of your gross income. TDS is the sum of your total debt payments, including your mortgage, relative to your income. Car loans, credit card minimum payments, and other debts count towards this figure. Guidelines state that this should be at or below 42%.
For those getting a HELOC Toronto, the GDS and TDS would be calculated on the amount of your existing mortgage plus the amount you requested on your home equity line of credit application.
Unfortunately, when counting TDS and GDS, it’s not as simple as plugging in your negotiated rates. Banks must use the higher of the Bank of Canada’s five-year mortgage rate or your negotiated rate + 2%. This means that you will have to qualify for a higher payment than you will initially have. The idea behind this is to account for interest rate increases. You need to be able to cover your HELOC in Toronto if the mortgage rates go up! Credit unions and other non-federally regulated lenders do not need to do this stress test before giving out a loan.
I Think I Might Qualify. How Do I Get The Best Possible HELOC Toronto?
If you’re like most people, you will read the paragraphs above and think that you might qualify for a line of credit, but you’re really not sure. After all, the nuances of how TDS and GDS are calculated, for example, are things you can estimate but not know with 100% certainty until you sit down to apply for a HELOC.
To make matters worse, a lot of people apply at a bank, TD Canada Trust for example, and run into issues. They then go to Royal Bank and run into problems there. They then put an application in at a couple of credit unions out of desperation.
This method is almost always going to lead to the worst rates. Every time you make an application, you are dinging your credit score. Every time you apply for credit, your rates will increase. It might not be a tremendous amount initially, but some people apply to many banks at once, all to get rejected in the end. By the time you find the credit union that is willing to make the loan work, your credit score has gone down maybe 10-20 points. In turn, your interest rate has gone up.
A mortgage broker is the best way to get a HELOC Canada. Mortgage brokers can take all your information, pull your credit score once, and use that single pull to shop around to multiple lenders. Every mortgage broker is different in who they partner with, but here at Citadel Mortgages, we partner with all levels of financial institutions. We use big banks like TD Canada Trust and Scotiabank as well as other institutions like Street Capital, Manulife, and ICICI Bank. Of course, that list is not exhaustive. We partner with many institutions to ensure you get the best rates.
This means that when you apply for a HELOC Toronto, a mortgage broker can shop around your loan application to multiple financial institutions at once. You then get the full list of approvals and rates. Of course, you select the terms that best fit you!
There are a couple of additional benefits to using a mortgage broker that are not often discussed. The first benefit is convenience. Instead of having to fill out multiple applications, you simply need to fill out the forms and provide documentation once. Your broker can submit it to all the financial institutions for you. It’s a much more streamlined process. Secondly, your mortgage broker is very, very familiar with obtaining a HELOC in Canada. They can review your initial documentation, credit score, and give you ideas of what you might be looking at rate-wise. They may also advise ways to increase your credit score and get a better rate. Or they may be able to advise what does and doesn’t qualify as income. For rental properties or self-employed individuals, showing proof of income to a bank is often quite tedious.
Again, the fact that you are unlikely to secure the best terms of your HELOC by making a bunch of applications to banks cannot be stressed enough. A mortgage broker saves time, energy, and more importantly, money. They work with you to get you the best rate.
Sounds Great! Let’s Recap Everything
To recap our discussions, a HELOC is an incredible tool. It can pay down debt, financing a large purchase, or just provide peace of mind knowing that you have access to the cash should an unexpected expense arise. There are the benefits of a HELOC, according to the Government of Canada :
– easy access to available credit
– often lower interest rates than other types of credit (especially unsecured loans and credit cards)
– you only pay interest on the amount you borrow
– you can pay back the money you borrow at any time without a prepayment penalty
– you can borrow as much as you want up to your available credit limit
– it’s flexible and can be set up to fit your borrowing needs
– you can consolidate your debts, often at a lower interest rate
In the Toronto market, where home prices have skyrocketed in previous years, it makes total sense to tap into your home’s equity to pay off other debts. That $500,000 home you bought a few years ago that’s now worth $800,000 can provide you with a substantial line of credit. The interest rate you will pay will likely be in the single digits compared to credit cards that can run at 20% or higher APR. Depending on how much debt you have, this could result in both a substantial interest rate reduction and a significant cash flow boost. Instead of paying thousands towards credit cards that all goes to interest, you can have payments in the hundreds to your HELOC instead.
There are obviously a few regulation requirements that all lenders must follow. The best way to navigate those is by having a mortgage agent take a look at your HELOC Canada application and determine the best option for you. A mortgage agent can work with dozens of lenders and pull your credit report once. This will avoid dinging your credit score. In turn, securing the HELOC Toronto will be significantly less stressful. All future credit applications will not be penalized due to the successive credit report hits.
I’d Like A HELOC, How Do I Get One?
Talk with a mortgage broker. Citadel Mortgages offers many HELOC options that are almost guaranteed to fit any borrowing need. Your mortgage broker will need some necessary documentation like your address, evidence of income, and authorization to pull your credit report. Once that’s all in place, the broker can take it from there and submit your application to multiple lending institutions. After a bit, you’ll hear back on where you were accepted and what the best rate is.
A HELOC is an excellent option for accessing money and paying interest only on the money that you use. Even if you just open a HELOC Toronto up and never use it, it can be comforting to know that you have access to a substantial sum of cash. Access to this money could prove essential should a significant unexpected expense come up (like the foundation of your house cracks). Of course, if that expense never comes up, you needn’t pay any interest.
It’s almost a no-brainer to talk with your mortgage broker and at least inquire what the process and rates would be should you open one up. Fortunately, it’s relatively easy to tap into the equity of your home. Getting you the right HELOC at the terms and conditions you want is something with which we can help!
By using a mortgage agent or mortgage broker from Citadel Mortgages, you will be able to ask all the questions you have and be ensured you get the best advice and mortgage product for your mortgage needs. Contact us here at Citadel Mortgages to become mortgage-free sooner!
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