Mortgage Articles

Opening a Large Line of Credit in Canada

What is a line of credit? A line of credit is a revolving account that allows you to quickly borrow money again and again. A line of credit is usually priced at or just above Prime Rate. You can make payments of interest only on the account and you can pay the full amount back at any time as well as reuse it again and again. The account stays active for as long as you need it and as long as it is in good standing.

Lines of Credit are very common in Canada. Usually a line of credit in Canada can range anywhere from 5,000 dollars all the way up to 100,000 dollars. Opening a larger line of credit is possible as well but it requires a few more steps. Large line of credit accounts take some sort of security or collateral prior to being open and available to use. Because lenders always provide money based on the risk level of the client and the loan required, any loan over a certain amount of money requires some sort of security. The most common form of security, when opening a large line of credit in Canada, is a home or property. Because a property is a solid investment that usually grows in value, it is safe security for the lender. If something should happen, where the borrower cannot repay the outstanding balance on a large line of credit in Canada, the lenders have the ability to use the security in the property that was provided. Appraisals are usually ordered by the lender to help determine the property's true value.

It's far easier to approve someone in Canada when they use their home as a security. They can usually be approved for much larger amounts, which gives them access to more money when they really want or need it. Typically, a lender will look at the available equity in a home. If the home is valued at 300,000 dollars and the homeowner has a mortgage on that property of 100,000 dollars, they will have 200,000 dollars in equity. Most lenders who offer large lines of credit in Canada will allow a borrower to setup a line of credit to a maximum of 80% of the property's total value. This provides them with a buffer of 20% equity in the event that they ever have to exercise their right to recover the outstanding money owed to them on that large line of credit. In this example of the home valued at 300,000 dollars, the borrower would be able to apply for and, pending qualification, be approved for a large line of credit up to 240,000 dollars. If they keep their existing mortgage of 100,000 dollars in place, they will have a large line of credit available in the amount of 140,000 dollars.

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