Many people know what a home equity line of credit (HELOC) is; a secured line of credit that borrows against your home equity and allows you to take out as much as you need, whenever you need it. But in addition to these standard HELOCs, there are also other types of these loans that are known as re-advanceable HELOCs. These loans are usually used by real estate investors who need to make a lot of payments all at once, before equity has been built up in their investment properties.
HELOCs are given based on an individual’s home equity. Typically the more equity you have, the more you can borrow. But what if an investor buys one property with a HELOC on his own home, and then wants to buy another property right away? With a down payment needed for that second property, the investor may not have enough money left on their original HELOC, and there’s not enough equity built up in the first investment property in order to take out a HELOC on that property. In these situations, the investor can make a payment on their original HELOC. Instead of just lowering the principle, as would happen in a traditional HELOC, the money is made back available to the investor right away.
The principal of the loan of course, is not lowered; but the investor can continue to borrow and pay back for up to three different properties. This allows the investor to make profit from the sale or rental of the property, as well as build equity in the properties, before needing to pay back the full principal on the HELOC.
There are a few banks that currently offer re-advanceable home equity lines of credit in Canada. And with interest rates at all-time lows, there’s never been a better time to invest in the secure investment of real estate and get a great rate on the line of credit. Because these loans can be a bit more complex than standard home equity lines of credit, make sure you speak to a mortgage broker. They’ll know which banks offer re-advanceable HELOCs, and can help you sort out all the ins and outs that go along with these loans.
