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Becoming a homeowner in Regina has plenty of benefits that go beyond the fact that you’re buying the house that you want. That’s right! By paying down your mortgage, you’re not only gradually buying your home and improving your credit while you do it, but you’re also actively creating equity, which you can then access at a later date. Keep reading for everything you need to know about what a HELOC in Regain Saskatchewan is.
Want to learn more about HELOCs in Saskatchewan? Take a look at this.
What Does Home Equity Mean?
Now, before we move on to the potential uses of your home equity, let’s start with a brief explanation of what it is and how you go about building it.
Essentially, home equity refers to the interest you’ve invested in your home, coupled with the fair value it would have if it were still for sale on the real estate market. You can build home equity in several ways:
- Making mortgage payments on time and in full.
- Increasing the value of your property through renovations, additions, etc.
- When the value of other homes in your neighborhood increases due to popular demand during a real estate boom.
For a more detailed explanation of how to build home equity, check this out.
How Can I Access My Home Equity?
Generally speaking, most lenders will allow you to borrow from your home equity once you’ve reached a certain percentage, often 20% or more of the home’s appraised market value (ask your lender how much you need in order to qualify). Once you’ve built up that amount, you can apply for two home equity products, which are often referred to as “second mortgages”.
Refinancing your mortgage? Here’s your appraisal checklist.
Second mortgages aren’t mortgage loans in the traditional sense. However, they’re called so because they qualify as mortgage products that will fall in second position to your primary mortgage. You can choose to apply for a second mortgage through your original lender/broker or through an additional source. While doing this may come with certain benefits, interest rates might be slightly higher because your secondary lender will be taking more of a risk by lending to someone who already has a primary mortgage. That said, once you’ve paid off the full outstanding balance of your first mortgage, any second mortgage you have will be moved to the primary position, allowing for a more affordable rate.
The Two Home Equity Products
As we said, once you’ve built up an appropriate amount of home equity, there are two types of second mortgage product that you can apply for:
Home Equity Loan
These are more commonly referred to as second mortgages because they more closely resemble the mortgage payment process. On the other hand, while a traditional mortgage allows you to finance a home over time, a home equity loan will be given to you as a lump sum of money deposited directly into your bank account. Then, similar to a personal loan, you and your lender can work out a payment plan that allows you to pay back that sum through equally divided installments with interest over several years.
A home equity loan might be better than a HELOC because:
- These loans typically come with a “fixed” interest rate, meaning your rate for each payment won’t change over the course of your loan term. Even though fixed rates can be higher than some variable rates, they allow you to budget easier, as you’ll know exactly how much each payment will cost.
- This product allows you to borrow up to 80% of your available home equity, which may be a significant amount if your home is very valuable or you’ve managed to pay off a significant portion of your primary mortgage.
- You may be able to negotiate the terms of your payment schedule, allowing you to increase or decrease your payment amounts, as well as shorten or extend your overall payment plan.
- You may also be able to adjust your payment frequency, which allows you to make payments on a monthly or bi-monthly, weekly or bi-weekly, or if you wish, an accelerated basis.
- Your payment period is likely to be shorter (than a HELOC), meaning you’ll be in debt for less time. Therefore, this may be a better choice when you have a number of one-time expenses, such as buying big-ticket items, consolidating high-interest debt, or dealing with financial emergencies.
Short for “home equity line of credit”, this is the alternative home equity product you can apply for. Despite it also occasionally being referred to as a second mortgage, a HELOC more closely resembles a personal line of credit that you would get at your bank. Since a HELOC in Regain Saskatchewan is revolving credit, similar to a credit card, you’ll be given a credit limit specific to the amount of equity you’re accessing. You can then withdraw from that limit in whatever amounts you need and pay your balances back through monthly installments.
Searching for the best rate on your line of credit? Check this out.
A HELOC in Regain Saskatchewan might be a better choice than a home equity loan because:
- These lines of credit typically come with a variable interest rate, which fluctuates according to the Bank of Canada’s prime rate. If the prime rate drops during your payment term, you could pay much less in interest than with any fixed rate.
- This product lets you borrow up to 65-80% of your available equity, which once again may be a large amount if your home is considered very valuable.
- You can often negotiate for a longer payment period, sometimes 20 years or more. Even though you’ll be in debt for more time, it’s usually a better option if you have ongoing expenses, such as home renovations, recurring vehicle costs or school fees to cover.
- Your payments aren’t fixed, so you can withdraw from your credit limit as needed. As such, you’ll only have to pay interest on the amounts you’ve borrowed.
- You’ll also have the option of making minimum payments when you can’t afford your full monthly balances. While you shouldn’t make this a habit (as the minimum payment trap can occur), it still saves you from any defaulting penalties, which apply when you don’t make full home equity loan payments.
- Since your overall payment period is longer, a HELOC in Regain is generally a better choice when you want to gradually increase the value of your home, as well as when you want to build or improve your credit over time.
When is Accessing Your Home Equity a Good Idea?
Like with any type of financial product, there are good and bad times to dip into your home equity. Even if you have a lot of equity built up, there are several factors to consider before you apply for any second mortgage, such as:
- The state of your income and finances
- Your current and future employment status
- Your lender’s particular rates and policies
- Your current and potentially upcoming debts/expenses
- How much of your primary mortgage you have left to pay (if any)
- If mortgage rates are due to increase soon
Here’s why the lowest mortgage rate may not be what you need.
Accessing your equity is a good idea when
- You’re certain that you’ll have no trouble dealing with both mortgage payments and any other costs that come your way.
- Your primary mortgage is already paid in full
- You have large or recurring expenses that are too heavy for your income/savings
- You have a lot of outstanding debt that needs to be swiftly eliminated
- You want to increase your home’s value with hopes of selling it at a profit
Accessing your home equity is a bad idea when
- Your income and savings are already used up in other areas
- Your budget won’t allow you to comfortably afford all payments involved
- You’ve only paid off a small portion of your primary mortgage
- Your home is not very valuable as it stands
- You’re not planning to use the acquired funds for necessary expenses
Applying for a HELOC in Regain Saskatchewan?
If you’re interested in dipping into your home equity in Regina and want to apply for a HELOC that suits your financial lifestyle, Loans Canada can set you up with expert lenders in your area.