How Does a Secured Line of Credit Work?

A secured line of credit is a great way to fund retirement or big ticket purchases, but do you know how they work? A line of credit is something most of us use each and every day like store credit and credit cards; both of these are money borrowed, repaid and borrowed again. Instead of having a credit card, you’ll use your home and have a line of credit fueled off that. You’ll be able to get a secured line of credit without having to have perfect credit. It’s important to get the best interest rate, so talk to a Toronto mortgage broker and make sure that you’re getting the best deal possible.

What Does Secured Mean?

Secured means that you have collateral backing your loan; in this case we’re only going to be talking about using home equity as collateral. There are many different types of these kinds of credit, but home equity always comes into play. To figure out how much equity you hold in your home, talk with your Toronto mortgage broker. If you don’t have one yet, the formula is pretty simple to figure out:

V= Value of Your Home (appraise value)
– D = Debt Against Your Home (whatever you still owe or have borrowed against it)
—————————————————
Equity

So if you have a $100,000 home, you owe $12,000 in mortgages, you hold $88,000 in equity or 88% equity in your home. When calculating how much you owe make sure you include any liens, loans, mortgages that you owe on the house. After you figure this out, you’ll know exactly how much you have to borrow against in your home. Make sure you talk with a mortgage broker before you make any decisions about getting a secured line of credit.

Are These Types of Credit Lines Risky?

They can be if you don’t understand your options and go with a lender who isn’t interested in a long term relationship. This means you’re going to want to be very careful about who you do business with! When you work with a Toronto mortgage broker or a mortgage broker near you, you’ll be able to have someone on your side who understands the intricacies of the financial markets. You wouldn’t go to an insurance company for a quote directly, so why would you approach a lender this way? It’s a waste of time and money if you try and do it on your own, so make sure that you speak with a mortgage broker before you proceed.

Secured lines of credit can help any Canadian get the money they need to buy big ticket items or pay off loans, but it’s important to realize that they’re not for everyone! You’re going to want to speak with a mortgage broker before you decide; they’ll help you explore your options and find out what the best deal is for you. This way you can save money and get the financing you need to move forward.

About the Author: Mike Smith is a mortgage broker and avid blogger for Home Base Mortgages. HBM is a Toronto mortgage broker that provides home mortgages, mortgage refinancing, home equity loans, debt consolidation, private mortgages and second mortgages.