Accessing Your Home Equity in 2018
Are you a currently mortgaging a home? Do you have many bills or a big expense on your hands that your income can’t cover? Dipping into your home equity might be the solution you’ve been looking for.
Paying down your mortgage and therefore building up your equity in your home is a very valuable asset to have on your side. You can then use this equity in a variety of different ways. What’s the best way to access and use your home equity in 2018, you ask? Good question! Keep reading, because Loans Canada has the answers you need.
For a more detailed explanation of how to borrow using your home equity, click here.
Refinancing Your Mortgage
This is a strategy consisting of renewing your mortgage in order to use your home’s equity to withdraw a cash amount. Let’s say your initial mortgage was $400,000. As the years went by, you were able to pay off half of it. Assuming the value of your home on the real estate market did not change throughout those years, you would then have $200,000 worth of home equity. However, if the value of your home does increase, so will your equity
Heard about the new Canadian mortgage stress test? Here’s how it will affect your refinancing plans.
Refinancing your mortgage implies creating a new mortgage loan to replace the old one. In exchange, you will have access to a certain amount of the $200,000 in equity you have accumulated. You’ll need to meet with your lender to determine just how large of loan they can provide you with. It’s important to understand, however, that you will now need to make payments on the new loan as well and your equity will decrease.
Refinancing your mortgage requires an appraisal. Check out our appraisal checklist.
A second mortgage is a loan taken out against your property that is already in the midst of being mortgaged. In this case, your house will act as collateral, which will allow you to gain access to the second loan or the equity money you need. Be very careful when taking out a second mortgage, as you’ll now have two separate mortgage payments to make. Since your home is acting as collateral, if you start missing mortgage payments and your lender determines that you won’t pay them back, they have to right to foreclose on the house (seize it) and possibly sell it to recuperate part of their loss.
Trying to refinance a second mortgage? Here’s how.
Home-Equity Line of Credit (HELOC)
This is another type of a home equity loan, only it comes in the form of a line of credit. The HELOC acts like a credit card, in that you’ll have a set credit limit that you can dip into as needed, and you’ll a specific time frame within which you’re required to make payments.
Want to get the best rate for your line of credit? Check this out.
Each HELOC also comes with a fixed or variable interest rate, depending on your lender’s specifications. With a HELOC, the borrower is pre-approved to use a certain amount of money based on the home equity they’ve built, which acts as the credit limit. The monthly payments vary depending on the amount spent. When the payment term expires, you must repay any outstanding amount.
Is it better to use a HELOC, refinance or take out a second mortgage? Find out here.
If you are overwhelmed by your credit card debt, unpaid student loans, or other high-interest loans, using your home equity to consolidate your debts is an option. With a home equity loan, you’ll get a more reasonable interest rate and you should be able to consolidate the majority of your unsecured debts under one loan. While this is a good option, it’s important to know that it’s also a risky choice, as your home is still being used as collateral in case you default on your payments.
How can debt consolidation help with your financial situation? Click here for the answer.
How Will You Use Your Home Equity in 2018?
In the end, the way you decide to access and use your home equity is up to you. Whatever path you choose should be based on your financial situation, so don’t make that choice until you’ve gotten all the advice you can and weighed all your options equally. If you’re having trouble figuring out which solution will suit your needs best, Loans Canada can help!