What does it mean to borrow your home’s equity?
With our economy just recovering and while you’re living on a fixed income, we understand how difficult managing finances can be. When times are tough or when the unexpected occurs, Canadian homeowners can tap into the equity in their homes to help with their finances.
What’s home equity?
Simply put, home equity is the difference between the value of your home and how much you owe on your mortgage. If the value of your home is at $300,000 and you’ve paid approximately $150,000 on your mortgage, this means that you’ll have around $150,000 in your home equity.
As a homeowner, you can maximize the equity in your home at a lower-cost, term loan or with a line of credit that can help.
When to borrow against your home’s equity
If you need a large sum of cash, borrowing against your home’s equity is a good option for you. You can use this to fund your child’s education, home renovations, repairs or improvements, a new car, a business or even consolidate your debt.
How to access your home equity
You’ve got a number of options to explore when you’ve finally decided to borrow against your home‘s equity.
Just don’t forget to consult your mortgage broker because not all financial institutions offer home equity financing options. There’ll also be an approval process you must go through. Here are 4 ways you can tap into your home equity.
1. Home equity loans
A home equity loan is a loan that uses your home as a collateral. Here, your lender lets you borrow money based on the value of your home. You may pay this in installments plus interest.
In order to get a home equity loan, you’ll need to be a homeowner who has already paid a significant portion from your mortgage. The lender will appraise your home for its value and then make a decision on the amount you can borrow.
2. Home Equity Line of Credit (HELOC)
As compared to home equity loans that can give lump sum amounts, HELOC is a line of revolving credit. You can use this credit line at your will and gain access to the full limit when you pay off your balance. In this way, you can borrow, pay and then borrow again. This line of credit is secured also against your home.
3. Mortgage refinancing
4. Second mortgage
A second mortgage is usually done through a private lender and is registered as a second mortgage on your existing property with a real estate lawyer. The interest on a second mortgage is usually higher than your first mortgage and payments are usually interest only.
Tapping into your home equity
Owning a home entails ongoing expenses, especially if you’ve got children or if you’re starting a family. This is why it’s important for you to maximize the resources you already have, including the equity in your home.
Still having trouble deciding? Talk to Daisy now, a trusted mortgage broker and financial security advisor. Together you’ll decide which type of loan best suits your needs and compare the different features of each option.