If you’re in the process of paying down your mortgage or you already own a house in Saskatchewan, it’s likely that you’ve built up some home equity, which you can put to use in a variety of ways, including but definitely not limited to:
- Consolidating any high-interest debt
- Tuition, school books, or other educational costs
- Dealing with necessary home-related bills (property taxes, utilities, internet, etc.)
- Household repairs, additions, renovations, and maintenance
- Taking out a “second-mortgage”
What is a Second Mortgage?
Despite its title, a second mortgage doesn’t actually involve borrowing money for a typical mortgage. It technically means that you’re taking out a second loan against the property in question, which then falls into the second position next to your first mortgage.
Essentially, you can take out a second mortgage once you’ve built up some home equity in the property that you’re currently mortgaging. When we talk about home equity, we refer to the portion of your first mortgage that you’ve managed to pay off, as well as a portion connected to the fair real estate market value of the home itself. If you wish, you can take out your second mortgage through a secondary source (other than your original lender). In that case, interest rates might be slightly higher than your first mortgage, due to the fact that your new lender will be taking more of a risk by lending to someone who’s already paying for a first mortgage. If you ever go into default, your first lender gets priority payment if the home needs to be sold.
If you’ve built up 20% equity or more, you can apply for either a home equity loan or a HELOC in Saskatchewan.
Home Equity Loans
This type of home equity product is more similar to a traditional Saskatchewan loan, such as a personal loan or a short-term loan. In this case, you would borrow an amount related to how much equity you currently have. Assuming you’re approved, the loan money will be deposited in a lump sum, directly into your bank account. You can then use that money for your necessary expenses and pay it back over the agreed-upon payment schedule, which involves a series of equally divided installments, coupled with an interest rate (the cost of using the lender’s services). Typically, the loan term lasts up to around 10 years. Once the loan is paid in full, you’re free to take out another or move on.
Benefits of a home equity loan:
- It allows you to borrow up to 80% of your home’s appraisal value, with the exception of the remaining mortgage balance
- You’ll know exactly how much your loan will cost you by the end of your payment term (including installments, interest rate, and other fees)
- You’ll have a “fixed” interest rate (the rate doesn’t change during the payment schedule), which is easier to calculate. Read this for a more detailed article about fixed and variable rate loans
- Maybe a better payment method for one-time emergency expenses
Home Equity Lines of Credit
Similar to a home equity loan, opening up a HELOC in Saskatchewan also involves borrowing from your home equity. However, a HELOC comes in the form of revolving credit, with a set credit limit according to the amount of equity you’ve built up, rather than a specific loan amount, sort of how a credit card works. You borrow from the credit line whenever you need and then pay it back in full or via monthly minimum payments.
Benefits of a HELOC in Saskatchewan
- They allow you to borrow up to 65-80% of your home’s appraisal value.
- You’ll have the option of paying a minimum monthly balance payment, similar to a credit card. While it’s better to make full payments, this will at least help you avoid penalties for missing a payment.
- The payment period is longer than a home equity loan, sometimes 20 years.
- Interest rates are usually variable (although some lenders offer fixed rates), meaning if Canada’s prime rate goes down, your own rate could end up lower and less costly than home equity loan fixed rate.
- Usually a better choice when you have ongoing expenses (lengthy renovations, recurring bills, etc.)
- Since the payment period is longer, a HELOC might be better for your credit health, as long as you’re making your payments on time and in the fullest amounts possible.
Looking for some other ways of improving your credit this year? Check this out.
What are home equity lines of credit?
Can I withdraw cash from a home equity line of credit?
How do I qualify for a home equity line of credit?
Looking For a HELOC in Saskatchewan
If you’re interested in applying for a home equity line of credit in Saskatchewan, congratulations, your search has ended! Loans Canada is here to help you get connected with the best second mortgage lenders in your area. Apply with us for better mortgage options today!