HELOC vs Refinancing vs Unsecured line of Credit: Which one is for you? 

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Heloc is a Credit card against your home's equity while a refinance is a lender paying off your old mortgage and giving you a new balanced mortgage.

Are you like me, and felt like spring would never arrive. I have a friend who goes fat biking every morning. Just last week, he sent me a picture of the trail he rides still covered in deep snow. The picture looked like it had been taken in the middle of February, but alas we are in the month of May. The forecast this week sees us hitting 20c for the first time since October 21st, 2021. 

Enough about the weather, spring is a time for cleaning, and maybe doing some home renovations, or even putting in a pool.

Have you considered using some of your home equity to finance a project? 

If so, let’s compare a HELOC, short for Home Equity Line of Credit, an unsecured line of credit or simply refinancing your home.

A HELOC is a revolving line of credit using the equity in your home, which acts as security against the money borrowed. Think of a HELOC as a giant credit card.  

An unsecured line of credit is not guaranteed by any asset. Unsecured credit always comes with higher interest rates because it is riskier for lenders.

Refinancing your mortgage basically means that you are trading in your old mortgage for a new one, with a new balance. When you refinance your mortgage, your bank or lender pays off your old mortgage with the new one.

Which is the most advantageous? 

Let’s put it in a pool, and say our budget is $50,000. 

  • An unsecured line of credit will cost you 5.2% in interest 
  • A HELOC will be 3.7% 
  • Refinancing will cost 2.65% 

* Based on variable interest rates  

A heloc is a credit card on your home's equity while a refinance is essentially trading your old mortgage for a new mortgage with a new balance.

In terms of interest rates, the least expensive of the three options is to refinance your home. Additionally, the amount borrowed can be amortized over a longer period of time. This allows you to spread out your payments. If you want to pay it down more quickly, most lenders give options to do so such as paying a lump sum on an annual basis.  

Heloc’s come in 2nd in terms of rate but because it is like a credit card, and that it is secured by your home. If you default or are delinquent on your payments, the bank can come after your home. If you have not been disciplined with your credit cards in the past, this option needs to be avoided.  

An unsecured line of credit is good to have as a “just in case” but should not be used for large purchases. The interest rate just does not make any sense. 

What is the best option for you? Call us, and we will walk through every scenario to find the one that fits your goal and budget. 

Martin Spalding

North East Mortgages

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