Our local freebie newspaper had the following Advertisement on the front page last week. It was from one of our big 5 banks in Canada and it took up the entire page. It said simply in 200 point Times New Roman:
Is your home equity credit line weighing you down?
Turn the page and it offered 1/2 % better rate than the competition. Is that a good deal? Before you jump on the offer, we'd better examine what a Home Line Equity Line of Credit (LOC) actually is.
You have finally bought that house you've always dreamt of. You have negotiated a stunning rate at your local bank, with a 30 year amortization. You've managed a small downpayment, say $100,000.00 on a $400,000.00 home, but what the heck. The house is yours (well, you own the title of the house, but the bank actually owns 3/4 of it). Now you can settle back and enjoy your new home. Hold it just a moment, reality check time. Once the automatic deductions for the mortage payments start, coupled with the car lease payments, day to day expenditures maybe just about covered, but it doesn't leave much room for little luxuries, not to mention socking away that couple of months salary that you should have just in case you get laid off.
Ta dah, the bank has an answer! How about a line of credit. You shake your head. Not possible, the bank won't give you a line of credit. But hold on a minute ... don't you own your home (well, mortgaged of course)? The bank is more than willing to give you a line of credit using your home as security. (Well, it's a no brainer, the bank has your house as security, so if you default, the bank has your house!)
And what is even more attractive is the more you pay down your home, the more money the bank will loan you.
Here's a link to a lovely lady telling all about it. Copy and paste it into your address line.
https://www.rbcadvicecentre.com/how-using-the-equity-in-your-home-could-benefit-you
Doesn't it sound just wonderful? Hold on a minute. Think about this carefully.
You own $100,000.00 of your $400,000.00 home. The bank owns 3/4 of your home (the amount of the mortgage). Now the bank offers to loan you $100,000.00 (which is the part of the home that you own) at a very good rate.
Yippee!!! Now you can go and buy all those luxeries that you couldn't afford before. But do a little math. If you max out your Home equity line of credit (and believe me it's easy to do), how much will you owe the bank? $300,000 for the mortage and $100,000 for the Line of credit. So how much of your home do you really own?
A big fat ZERO.
Do you want to be a hamster in a wheel? Well, just get yourself a home equity line of credit.
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