Did You Know a HELOC is Mortgage?

57% of people with a Line of Credit Don’t

Before a property goes on the market, it’s essential to assess the seller’s equity or ownership interest in a property. This is calculated by taking the property’s value and subtracting mortgages, penalties and other registered liens. If the amount of debt against the property exceeds the sale price, the seller may not be able to transfer title to the buyer on closing. This possibility is considered a material fact that should be disclosed to a buyer.

In reviewing client equity, we’ve noticed that a number of sellers who have a line of credit don’t realize that the debt is secured by the equity in their home. That is, it is registered as a mortgage, and this is known as a Home Equity Line of Credit or HELOC.

Why Sellers Don’t Know—5 Reasons
Here are five possible reasons why sellers may not know that a home equity line of credit is registered on the property:

  1. Many lenders do not charge appraisal or other closing costs as with conventional mortgages.
  2. The borrower usually pays interest only on money drawn.
  3. Interest is calculated daily, unlike a regular mortgage.
  4. Money may be withdrawn, paid back without penalty and again taken out, much like a credit card.
  5. Many lenders register an umbrella mortgage for the home’s value, eliminating added legal costs and re-applying. Now the borrower has 3 to 4 different credit products to a credit limit.

 

TitlePLUS recently commissioned Leger Marketing to test peoples’ knowledge of HELOCS. According to the poll about 36% of Canadians have a home equity line of credit. On average, Canadians responded correctly to only 38 per cent of questions asked to test their knowledge of HELOCS. Of Canadians who have a home equity line of credit, only 43% responded correctly; and 57% didn’t know that a mortgage is registered on the borrower’s home. To access the report, Google: TITLEPLUS | Canadians lack knowledge about home equity lines of ...

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