Remember life before COVID-19? Like many Canadians, Anna and her husband David have been carrying a little more debt than they’re comfortable with. While their main financial responsibility is a mortgage on their Hamilton-area home, the couple also carry a balance on several credit cards and feel weighed down by what they owe. In recent months, Anna and David had talked about applying for a Home Equity Line of Credit (HELOC) or other options through their bank, but hadn’t gotten around to making an appointment with an advisor. Enter the pandemic, and the couple suddenly needs access to credit during COVID-19. As self-isolating and social-distancing measures impacted Anna’s work as a speech pathologist, their timing has become more urgent.
Changes to life and credit during COVID-19
“I’m self-employed and not considered essential,” explains Anna, noting she can no longer see clients in-person. “I am trying to do some work online to help with our cash flow, but it is taking a huge bite out of our monthly income.” Also affecting Anna’s ability to earn money is the presence of their two young children, both home due to school and daycare closures. David is an essential worker and is still working, but the couple had relied on Anna’s income to make ends meet.
The need for credit during COVID-19 is as timely as the need for proper hand-washing techniques. “Accessing money would give us peace of mind,” says Anna.
Many banks and credit companies are offering special rates and services right now, but as always, it’s best to explore your options. We spoke with Domenic Falcone, a senior financial advisor with Manulife Securities in Toronto, to discuss the risks and benefits associated with several common forms of credit available now.
Home Equity Line of Credit (HELOC)
The good: Low interest, flexible payment schedule
The bad: House is at risk for foreclosure if payments are missed
If you own a home, a Home Equity Line of Credit (HELOC) may be a good place to start, according to Falcone. Essentially a HELOC is a second mortgage line of credit valued at the equity in your home, but at a much lower interest rate than a regular line of credit. (To figure it out, take the current market value of your home minus the balance of your mortgage.)
“The credit is there as you need it,” he explains. “You don’t pay the interest if you don’t need to use it. The rates are typically lower and you can just pay interest only—in many cases, you aren’t forced to make both principal and interest.”