HELOC Lenders The acronym “HELOC” stands for a Home Equity Line of Credit. This borrowing instrument is not the same as a home equity loan, where the borrower gets the full loan amount in advance. With HELOC, the lender establishes the maximum sum that can be drawn and the full amount is not provided up front. HELOC lenders set two major requirements, and their clients must meet them. Two important periods are connected to them, and the first is known as the draw period. In this period, you can borrow any sum up to the credit limit at any point in time. The period ranges from 5 to 15 years. The debtor pays interest on the borrowed amount only and can repay it in full or in part at any time without penalties. When the draw period ends, the lender may demand that the borrower pays off the loan in full. This is where refinancing comes in. There is a second possibility – the repayment period. In this case, line of credit lenders demand that the client starts paying back the loan principal as well as the interest. HELOC lenders may require a minimum monthly payment, usually limited to interest. The borrower is entitled to make a repayment of any amount that is bigger than the minimum payment, but smaller than the total outstanding sum. All major banks and financial institutions in Canada offer HELOC loans (Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, etc). Mortgages in Canada are typically recourse loans, meaning that the borrower is personally responsible for the debt on a foreclosed real estate property. In this situation, he or she proves unable to pay back the borrowed amount of money. Keep in mind that the lender may put some limitations on how the home equity line of credit is used. For instance with some plans, you may be required to borrow a specified minimum amount every time you are drawing on the line (e.g. $200). As an alternative, you may have to keep a minimum outstanding amount. With other plans, you may be required to take an advance once the line of credit is set up. In 2008, important financial institutions like Citigroup, Bank of America, JP Morgan Chase, Washington Mutual, and others started freezing their heloc products. These lines of credit were reduced or restricted in many ways. Falling real estate prices have resulted in borrowers owning reduced equity, which constitutes a great risk of foreclosure from the banks’ point of view. Clients were outraged because many of them had never missed a single payment and were put off to find out that the lender had just decided their home was not worth what it used to be.