Which of the following statements accurately describes a key characteristic of a Home Equity Line of Credit (HELOC) in Canada?

Question: Which of the following statements accurately describes a key characteristic of a Home Equity Line of Credit (HELOC) in Canada?

Answer options:

• It provides a lump sum payment that must be repaid within a fixed term and amortization schedule.
• Interest rates are fixed for the entire duration, regardless of prime rate changes. ✅ It allows a homeowner to borrow against the equity in their home, with an interest rate typically tied to the prime rate, and payments are often interest-only on the outstanding balance.
• Repayment is only required when the borrower sells their home or passes away.

Correct answer: It allows a homeowner to borrow against the equity in their home, with an interest rate typically tied to the prime rate, and payments are often interest-only on the outstanding balance.

Explanation: A HELOC allows homeowners to access the equity in their property as needed, with a revolving credit limit. The interest rate is typically variable, tied to the prime rate, and borrowers usually make interest-only payments on the outstanding balance.