Are you currently mortgaging a home in Quebec? We have good news for you because your mortgage payments are valuable in more ways than one. Not only can a Quebec mortgage help you afford the home of your choosing, but you can also use it to access your valuable home equity. If you own a home, you may be able to use the equity you’ve built up to take on a HELOC in Quebec.
Need more information about loans in Quebec? Look for it here.
Home Equity and Second Mortgages
Accessing your home equity and applying for a second mortgage are two processes that are directly related. Below, we’ve included a short summary of each process so that you can learn how to use your own home equity to your advantage.
Essentially, your home equity is the amount of your principal mortgage that you’ve managed to pay off, coupled with the estimated real estate value of your home as it sits currently. The more of your mortgage you pay the more equity you’ll gain access to. Part of the process of determining how much equity you have also involves an appraisal of your property. This means that if your home is in good shape and your neighborhood increases in value, you can stand to earn some extra equity. Once you have at least 20% equity in your home, you can use it to take out a second mortgage, which we’ll explain below.
Planning to refinance your mortgage? Check out our appraisal checklist.
The idea of applying for a second mortgage can be a bit hard to understand if you’ve never discussed the idea with your mortgage broker, lender, or financial advisor. You may hear the word “second” and assume the procedure involves taking out an additional mortgage on your home for whatever reason. However, the term “second mortgage” is more of an expression than anything. A second mortgage actually refers to the process of accessing your home equity, which is typically done by applying for a home equity loan or a home equity line of credit (HELOC).
Want to know how you can apply for a second mortgage in Canada? Take a look at this.
The term “second” mortgage only applies if you take out a home equity loan or HELOC while you’re in the middle of your original mortgage amortization. That’s because, if your primary mortgage is not completely paid yet, your chosen equity product will fall into the second claim position. You can even apply for a home equity loan or HELOC in Quebec through an alternate lending source (other than your bank or primary lender) if you’re trying to secure better rates or for any other reason. It’s good to know, however, that interest rates on second mortgages are usually higher than with first mortgages, simply because your mortgage lender is taking a significant risk with a borrower who’s already in the process of paying for a first mortgage. That being said, if you manage to pay off your entire first mortgage, your home equity loan or HELOC can be placed in the first position, which may earn you a lower rate and save you some money over time.
Home Equity Loans
As we said, there are two main credit products that homeowners can apply for in Quebec once they’ve built up at least 20% home equity. The first is a home equity loan, which allows you to access up to 80% of your available equity. Similar to a traditional installment loan, a home equity loan will be deposited into your bank account via a lump sum of cash. The loan also comes with a fixed interest rate, a payment schedule of around 10 years or less, and a set due date by which you’ll have to pay your full outstanding loan balance (all these components can be discussed with your lender).
Click here to see an explanation of fixed and variable rate loans.
Following approval, the loan will be secured against your home. Be careful, because turning your home into collateral means that you’ll lose it if you continually default on your home equity loan payments. Once you’ve secured your loan, however, you’ll be able to calculate exactly how much you’ll pay for your loan in total, which will help you draw up the right budget. Afterward, the loan funds are better invested toward:
- Dealing with large amounts of unpaid consumer debt
- Tackling emergency expenses (car-related problems, lack of rent money, etc.)
- Paying for elective medical procedures or important medications
- Any other large costs that require immediate payment
Want a loan to lease or purchase equipment for your Quebec business? Check this out.
HELOCs In Quebec
While a home equity loan can be beneficial in many ways, a HELOC is equally helpful because it allows you to draw from a revolving credit line in whatever amounts you’d like. You can then pay those funds back in monthly increments, just like a credit card. In fact, a HELOC in Quebec can be an even better credit product because you usually have a longer payment schedule (sometimes 20 years). HELOCs also come with a minimum payment option, again like a credit card, so that you can avoid penalties for defaulting, even if you don’t have enough money to cover your outstanding balance completely. Unlike a home equity loan, however, your HELOC will usually be accompanied by a variable interest rate (fixed rates are possible with some lenders), which will go up and down in accordance with the Bank of Canada’s market rate (otherwise known as “prime rate”). While you won’t be able to calculate your loan payments as easy (because they’ll vary according to how much credit you’ve used that month), you could stand to save some money if the prime rate goes down during your payment term. Additionally, you’ll only have to pay interest on the credit you’ve used, not on your loan payments as a whole.
Opening a regular line of credit? Look here to learn how you can get the best rates.
More closely related to a secured loan, however, your property may also be foreclosed and sold as collateral if you stop making responsible payments. Are you comfortable with that level of risk? If you are, it’s probably better to invest your HELOC in Quebec toward:
- Any recurring or varying costs (home or vehicle repairs, frequent bills, etc.)
- Increasing the value of your property (renovations, additions, landscaping, etc.)
- Paying for your ongoing educational costs (books, school supplies, tuition, etc.)
- Dealing with your revolving bills (credit cards, a regular line of credit, etc.)
- Other expenses that are too large for your monthly income or credit card limits.
- Building and/ or improving your credit score with a longer payment schedule.
Trying to avoid the foreclosure process in Canada? Read this first.
Are there any fees related to a home equity line of credit?
What are the different types of home equity lines of credit?
What are the requirements for a home equity line of credit?
The Best HELOC For Quebec Homeowners
If you’ve been wondering how to use your home equity, one of your best choices is a HELOC in Quebec. For debt consolidation, bill payments, home maintenance needs, and other related expenses, a home equity line of credit can be the perfect financial tool. As always, Loans Canada is here to help you secure the best home equity lines of credit in your province. Apply today!