How to Borrow Against Home Equity

Owning a home comes with a lot of financial responsibilities which can add up and make things difficult especially for those who are just making enough to cover their needs. For a lot of Canadians, having a savings account for unforeseen needs is not always possible and hence, tapping their home equity is one of the best financial solutions to cover a large expense. So, what should one know about borrowing against home equity?

For starters, home equity is defined as the value of one’s home that the homeowner truly owns. If you’re paying your mortgage, the money that goes towards payment builds your home equity. It can also be defined as the market value of the home minus the amount still owed in the mortgage. This means that when property prices increase, your home equity rises with it.

Borrowing Against Home Equity

Given the above, the first thing you should do before you borrow from your home equity is to determine how much home equity you have. You need a computation of how much you still owe in your mortgage and have your home appraised to know the current market value.

There are many different ways to borrow against home equity and they all come with specific requirements when it comes to the minimum home equity a homeowner should have before qualifying for a home equity loan.

Types of Home Equity Loans

There are 3 common or traditional ways to access home equity. By getting a home equity loan or a second mortgage, by getting a HELOC, or by refinancing your mortgage.

Getting a second mortgage will allow you to access up to 80% of your home equity. It works like other secured loans with the main difference being the fact that this one uses your home equity as security. Failing to pay a second mortgage can still result to you losing your home although, in case of continuous nonpayment, the primary mortgage will be the first one to get paid after assets are seized.

Getting a HELOC (Home Equity Line of Credit) is like getting a credit card with a relatively substantial credit limit and is backed by your home equity. Just like a credit card, you can keep borrowing from a set limit as long as you adhere to the set terms. A HELOC is great for covering small expenses that can’t be covered by your income. Most HELOCs require that you have at least 20% equity and a good credit score but some lenders may be more lenient.

Refinancing your mortgage allows you to access some of your equity after you break your first mortgage with your current lender. Refinancing will let you access up to 80% of your equity but remember that you’ll have to pay prepayment penalty fee for breaking your first mortgage.

Using Your Home Equity Loan

You can use your home equity loan to fund big projects, to invest in your home, pay for university education, or start a new business. The key to success with borrowing against your home equity is to approach the right lender with your intent and show that you’re capable of handling the loan you’re applying for. If you need help borrowing against your home equity, contact us at Mortgage Central Canada.

 

 

Get a Second Mortgage with Bad Credit

Bad credit may get in the way of getting a second mortgage but it is still possible to get approval even with a less-than-desirable credit score. This is definitely worth a consideration because a second mortgage can be used to improve one’s credit score. A strong application is a must and you must shop for the best interest rate to reap the most benefits.

Dealing with Bad Credit

Getting a second mortgage with a bad credit comes with certain disadvantages. First of all, a second mortgage already comes with a higher interest rate than a first mortgage but with a bad credit, the lender will surely ask for a higher interest to cover the risk of lending to you. This is because a second mortgage is subordinate to the first mortgage and the lender for the second mortgage runs a higher risk of not getting paid if financial troubles arise. It is therefore only logical to be given higher interest rates for a second mortgage if you have bad credit but you can still get a good deal by shopping for the right lender.

Apply for a Second Mortgage with Bad Credit

The first step that you must do before applying for a second mortgage if you have bad credit is to find ways to improve your credit score. It is possible that there are some mistakes that can improve your score once corrected. By getting a copy of your credit history and reporting wrong entries, you may be able to get a great boost in your credit score for a relatively short span of time.

The second step that you must take to get a second mortgage despite having bad credit is to actively work towards reducing your debt, particularly the high-interest ones such as credit card debt. If it is possible, pay them off in full or make sure that the balance is below 30% of your credit card limit. Don’t fall for converting your credit card debt into new lower-interest card debts because this won’t help you in getting approval for a second mortgage. It will look like you have multiple credit applications which will make it seem that your finances are in worse shape than it really is.

Find the Best Lenders in Canada

Getting help from a mortgage professional will make your second mortgage application a lot smoother if you have bad credit. Mortgage professionals know which lenders are more lenient and which lenders will give you a better interest rate. Mortgage professionals can also share some tips for faster approval such as having a co-signer with a good credit score.

Getting a second mortgage with terms that you can manage within a short span of time will drastically improve your credit history and open the possibility of qualifying for other loans in the future. Contact us if you have bad credit and need help with applying for a second mortgage in Canada. We’ll be more than happy to discuss possible solutions with you at Mortgage Central Canada!

Get Out of a Bad Debt in Canada

Getting out of a bad debt is quite a challenge, but to try to do so with a bad credit is even harder to accomplish. A bad debt is a debt that you can’t afford to overlook payments for but the terms of payment are making it near impossible for you to have the debt taken care of. It takes a bit of planning and financial maneuvering to get out of a bad debt and we’ll share about this below.

Assess Your Debt Situation

If you have a bad credit or a bad debt, the first thing you need to do to pay off the debt is to find out what caused your present financial situation to begin with. Where you in the habit of purchasing things that are beyond your means or was your situation because of repeatedly forgetting to pay on time, thus damaging your credit score and accumulating lots of interest? Understanding the cause of your bad debt and/or bad credit situation will help you pick the best solution and plan for payment.

You also need to ask yourself if you are truly in debt. Most people are not aware that simple mistakes in recording or computing interest can cause a downward spiral that can place a person in debt although there is no debt, to begin with. Checking one’s credit history is important to see if all information contained therein are accurate. If everything is accurate, then it is time to find a way to pay off the debts.

Consolidate Loans

A possible solution to paying debt is to consolidate your loans to a lower-interest debt in order to manage payments easier. Going this route can help you get out of both bad credit and bad debt by eliminating huge fees for interest and taking care of the hassle of trying to get separate bills paid on time. However, you have to understand that simple debt consolidation may not be enough if you don’t take your financial history into consideration because the truth is, having bad credit and/or bad debts are just symptoms of having a deeper issue with handling your finances. You have to pick a solution that works for your long-term benefit.

Plan for the Future

A personal plan for paying debt allows you to see what you can afford to pay towards debts each month. To determine how much you can set aside for debt payment per month, list down all monthly expenses and subtract the total from your expected monthly income. Whatever is left is what you can truly afford to set aside for debt payments. Determining this prevents you from agreeing to payment terms that you cannot fulfill which will just result in worse credit and worse debt down the road.

Get Out of a Bad Debt the Smart Way

Some smart ways to take care of a bad debt and bad credit is to use your home equity for paying debts or to get a bad credit loan. Both have pros and cons that are worth a look to see which would suit your financial needs better. Contact us at Mortgage Central Canada for an obligation-free initial consultation as soon as possible if you need help with getting out of a bad debt.