What You Need to Know About Getting a Home Equity Loan

With the steadily rising home prices at present (more so in key cities), it isn’t far fetched that you’re probably sitting on a huge equity especially if you’ve been paying your mortgage for about 10 years or more. Tapping into your home equity by using a home equity loan can give you a huge advantage in paying off high-interest debts and affording some expenses without having to sell your home.

Do you know that approximately 10 million homeowners will take a home equity loan between 2018 to 2022 as predicted by a TransUnion study? That’s double the numbers from 2013 to 2017! What better time than now to understand how equity loans work and find out what you need to know in order to get one?

Know Your Credit Score

Your credit score is a key factor in determining whether your loan will be approved or not, so finding out your credit score is a must more so if you want to really plan out your options just in case a line of credit or a home equity loan may not come into fruitition.

Find Out How Much Debt Do You Have

The current debt that you have may become a hindrance to your securing a loan. Although a lot of people get a home equity loan for debt consolidation, wanting to do the same may not sit well with some lenders. Lenders lend you money so that they can get interest in return. They know they won’t be getting any if your existing debts are eating up 43% of your income or more.

Determine Your Equity

Your equity will let you know about how much you can tap by getting a home equity loan or a line of credit. Do this after the initial steps above. To simplify, you need to have an estimate of your home’s current value and subtract how much you still owe from that. Reduce the answer to 80% of your numbers and that will be the maximum a lender is probably going to lend you. Plan around that accordingly to avoid surprises and determine if the effort of filing and fees will be worth it.

Why Are You Getting A Loan?

Assess why you are getting a loan and what you can do besides applying for a home equity loan. Find out what are the types of home equity loans and determine which will fit your needs and goals better. Do you need a huge lump sum payable in the next 5 to 15 years? Then a home equity loan is the right option for you. If what you need is extra funds for repeated expenses, a line of credit can help ease your financial burden for about 10 years.

Want to talk with Canadian mortgage experts about ways to use your home equity in the future? Talk to us and we’d be happy to walk you through the various details of applying for a home equity loan as well as the benefits of home equity loans.

 

10 Smart Tips to Build Home Equity

Building one’s home equity is one of the most searched terms by homeowners these days as more and more people are becoming aware of how important it is to invest in their home. Below are 10 smart tips on how you can build home equity.

Increase Your Mortgage Payments

Making larger mortgage payments per month means that you’ll be able to pay your mortgage sooner by building equity faster. The more monies that actually go into the principal, the bigger your equity becomes.

Choose High Value Home Improvement

Smart home improvement choices increase the value of your home thereby also driving up your home equity. Choose home improvement projects that have a higher expected value than what you spend on it and you’ll be in good hands.

Support Changes that Increase Home Price

Anything that can drive up your home’s value will also increase the equity. Examples are better infrastructure and amenities in the neighbourhood, a new park, a new train station, or schools nearby that rank high. Support local improvements in your neighbourhood to indirectly increase your home’s market price and your home equity.

Start with a Bigger Down Payment

The bigger the downpayment you put in, the lower will be your loan-to-value ratio and the better interest rates you’ll get. Low interest means being able to pay off your mortgage sooner while building home equity faster.

Shave Your Mortgage Balance

Paying your mortgage bills on time each month means that you’re paying towards the principal of your mortgage (if it is not an interest-only loan). Any amount that goes towards your principal is going into building your equity.

Opt for a Biweekly Mortgage Payment

Paying your mortgage every 2 weeks means paying it off faster and building your equity in the process. This option also has a lower interest rate so more of your payment goes into the actual mortgage instead of just the interest.

Invest in Maintenance

Keeping your home in the best shape possible will mean that you’ll either retain or grow the value. Doing that directly translates to building home equity.

Choose a Shortened Mortgage Term

Refinancing at a shorter mortgage term will increase your payments but you’ll also save on interest aside from being able to build your mortgage faster.

Improve Your Curb Appeal

Making your home look good will give it a higher market value, therefore increasing your home equity. Landscaping, better lighting, some flowers, and an inviting front door can work wonders!

Avoid Repeated Refinancing

Building equity is not just about increasing it but also retaining it. Repeated refinancing will suck your equity dry, not something you’ll want to do when you’re trying to build it.

Want to consult with experts about the best ways to use your home equity in the future? Contact us and we’ll be happy to talk to you about using your home equity for a loan and building your assets.

Turning Your Mortgage Into Assets

Not many are aware that a home mortgage can be turned into an asset builder with the right mindset and know-how. Most people view their mortgage as an obligation or a money pit, not seeing the fact that paying mortgage is similar to building a huge savings fund.

The above is true because the more a homeowners pay towards their mortgage, the bigger their equity becomes. Equity can be turned into cash that can be  used for further growing one’s assets without having to sell one’s home. Below are the common ways of accessing home equity.

Get a Second Mortgage

Do you know that a second mortgage can get you access to as much as 80% of the home equity you’ve built up? That is quite a substantial amount that can be funneled to finance major home renovations (that can drive up your home’s value) or perhaps spend for a much-needed large expense (such as debt consolidation) that can improve your overall finances.

Getting a home equity loan (another term for a second mortgage) may prove to be quite challenging if you do not have good credit.Professional mortgage brokers can help you get one from other lenders if banks decline. The most important thing to remember is that applying for a second mortgage means having two mortgages instead of just one and that both have to be paid on a monthly basis.

Get a Home Equity Line of Credit (HELOC)

Just like a second mortgage, a HELOC is a loan secured by your property but instead of a lump sum, you’ll be given a line of credit that you can use for a specified length of time as long as you do not exceed the approved ceiling amount.

As much as 65% of a home’s value can be tapped for a HELOC. Payment is usually just for the interest for a period of time and once that time is up, the repayment must be done. A HELOC is perfect for paying recurring big expenses such as medical treatment or university tuition.

Get a Mortgage Refinance

A mortgage refinance is a way to overhaul your current mortgage contract and convert it to a mortgage that more manageable for you while also giving you access to your home equity.

Penalties might be incurred for certain reasons and so a refinance isn’t for everyone unless refinancing will result to significant savings in the long run. It is best to talk this through with a mortgage professional to ensure that you’ll be making the right financial decision.

Get a Private Loan

80% is usually the highest percentage of tappable equity you can get access to by going through traditional lenders. If you are in need of more than that, you might be able to get access to as high as 90% of your home equity with a private lender more so if your property is in a desirable location and in good shape.

Are you thinking of tapping your home equity to fund possible investment opportunities? Talk to us at Mortgage Central Canada and we’ll be more than happy to explore possible options for you. Be it about getting a mortgage loan or the things you must be aware of before getting a home equity loan, feel free to contact us soon!

 

Comparing Rates – Home Equity Line of Credit in Canada

Getting a Home Equity Line of Credit in Canada means tapping into the equity you’ve built in your home through a line of credit. It is a way of utilizing the value of your home that you truly own. Note that it only sounds similar but is not the same as an unsecured line of credit.

HELOC Explained

A Home Equity Line of Credit is a type of revolving loan that is secured by the equity of your home. It is not the same as a home equity loan because a home equity loan is a one-time loan of your home equity that will have to be paid back in full before you can use it again.

A HELOC can be reused again and again as long as you don’t exceed the ceiling amount within the time agreed for your HELOC. Interest rates for a HELOC are more manageable as well because only the exact amount withdrawn gets computed for interest. This means that if your HELOC has a ceiling of $100,000 and you only used up $1,000, you only have to pay interest for the $1,000 you used. As you pay back that $1,000, your ceiling goes back to $100,000. Think of a HELOC like a credit card with a high spending limit that is tethered to the equity of your home.

HELOC Interest Rates

Interest rates for a Home Equity Line of Credit has been made a little bit higher since the Bank of Canada increased its key interest rate to 0.75% on July 12, 2017. This is still easier to manage than interest for credit cards which are more than 10X higher than that.

Those who have a HELOC can expect that their variable interest rates will be a little less predictable but ultimately they will still end up saving upwards of a few hundred dollars a month in interest as compared to more traditional loans.

How to Get a HELOC?

Applying for a HELOC may be a bit tricky if you’ll be doing it on your own or will be approaching big institutions to get one. Requirements vary by lender and some lenders (such as banks) can have very strict requirements.

If you are self employed, have variable income, have a non-perfect credit history, or have other debts, going the bank route may not be the best option for you. A good option is to apply for a Home Equity Line of Credit to private lenders or smaller lenders with the assistance of professional mortgage brokers to ensure that you’ll get higher chances of approval and that all your bases are covered.

If a HELOC is not for you, you can also look into a home equity loan or second mortgage, a private mortgage, or even home refinancing. The key is to ensure that you’re talking to the right people and that you really do your due research to determine what is right for you.

Care for an estimate of rates before you apply for a Home Equity Line of Credit or other possible ways to help you manage your finances better with a loan? Contact Mortgage Central Canada today!