How to Use Your Home Equity in 2019

People have been using their home equity as a source of emergency funds or as a backup savings plan for years, but not a lot understand how it really works. If you haven’t tapped your home equity yet, 2019 might be the year to consider tapping your home equity for huge bills, consolidate loans, or pay for expenses that your savings or income can’t cover.

Building up your home equity by diligently paying your mortgage is a smart move that builds up this asset of yours over time. Once you’ve accumulated a significant amount of home equity, you can use it for any of the following!

Debt Consolidation

Consolidating your debts to start the year is a smart move towards better management of your finances. By consolidating your debts, not only will you make it easier for you to get your debts paid but you will also save money on interest. You can use your home equity to finance your debt consolidation. Just ask us how!

Home-Equity Line of Credit (HELOC)

A HELOC is a line of credit that acts like a credit card but instead of a credit limit, you are given access to a certain amount of your home equity. You are free to use as little or as much of the HELOC as you want as long as you are able to make payments according to the terms. New terms are currently in the works for HELOCs these days so be sure to consult with us whether a HELOC will be advisable for you.

Refinancing Your Mortgage

Refinancing your mortgage involves renewing your current mortgage so that you can use your home equity to access a cash amount. For instance, you have an initial mortgage of about $500,000 and you were able to pay about 70% of it, that will give you $350,000 in home equity. However, if the real estate prices in your area have increased, your home equity can be a lot more than that. In this situation, refinancing your mortgage makes sense to create a new mortgage loan to replace your current one in order to access some of your home equity as well as make payments easier for you. Know that specific steps have to be carried out to refinance your mortgage (like getting a home appraisal), and there are other fees that you’ll have to pay too.

Second Mortgage

A second mortgage might be a good option for you if you have an existing mortgage but don’t want to refinance. In a second mortgage, your house is your collateral and you still have to pay off your primary mortgage so you have to be sure that you can afford paying two mortgages at the same time to avoid possibly losing your home to foreclosure. We have some articles on what you have to know about second mortgages but feel free to reach out to us should you have additional queries.

Use Your Home Equity in 2019

It is up to you to determine which is the best way to access home equity for yourself this year based on your financial situation and other personal factors. If you need professional help to assist you in assessing your options, contact us at Mortgage Central Canada and we’ll surely help!

How is a Second Mortgage Different from a HELOC?

Owning a home means having the benefit of having home equity that you can tap into should the need arise. In the event of a huge financial expense that you can’t cover with just your savings, you can tap into your home equity. Examples of these high-ticket expenses are an extensive car repair, some expensive medical procedures that are not covered by insurance, home improvement and home renovation, or paying for higher education. In Canada, some of the most popular ways that homeowners use to tap into their home equity are second mortgages and HELOCs. So, how does a HELOC differ from a second mortgage and which one may be better for you?

Let’s Understand Home Equity

Home equity is your home’s current value minus any debt you have on it or remaining mortgage you still owe from your lender. This means that if your home is valued at $1million and you still owe $400,000, your home equity is at $600,000 which is 60% of your home’ value. Having home equity that is above 20% of the home’s value typically qualifies for both a second mortgage and a HELOC. Most lenders will also allow you to tap up to about 80% of that equity. For $600,000, that means you can access as much as $480,000.

What is a Second Mortgage?

A second mortgage is a home equity loan that is taken on top of having a primary mortgage. It comes as second in priority in terms of payment if you ever default and so carries more risk for non-payment. This is why second mortgages charge a higher interest than a primary mortgage. Second mortgages are dispersed as a lump sum and repaid in installments with a set sum according to terms until the entire debt and interest are paid in full.

What Is A HELOC?

A HELOC, or a home equity line of credit, involves the use of home equity as collateral for the loan but the loaned amount is made available as a revolving credit, unlike a second mortgage. With a HELOC, the homeowner is given access to funds that they can use and reuse as needed, much like having a credit card with a really high credit limit. The homeowner can take out as much as needed or even just a little amount at a time as long as the credit limit isn’t exceeded. The monthly payments are typically just based on the amount that is used up and interest is only charged for the same. With a HELOC, you can also reuse the funds after you’ve paid them back as long as the HELOC is still active. This is the most flexible option when it comes to borrowing against your home equity although may not work well for those with shopping addiction or uncontrollable spending.

How is a Second Mortgage Different from a HELOC?

Both second mortgages and HELOCs are extremely helpful for homeowners who need access to large sums of cash. Both have risks and pros that should be weighed out prior to deciding which one to get. Note that with both home loans, you will risk losing your home if you fail to honor the terms or make payments. It is best to speak to a mortgage professional to get an in-depth insight on how they differ and what may work better for you. If you’re planning to get a HELOC or apply for a second mortgage in Canada, do not hesitate to contact us.

 

Planning on Getting a Second Mortgage or Applying for a HELOC? Read This!

If you’re a homeowner, it may have crossed your mind to use your home equity to get a second mortgage or perhaps apply for a HELOC; but how possible is it for you to get one? Are you sure that you can get HELOC or second mortgage approval with the recent changes in interest rates and mortgage rules? Do you know that getting a HELOC is not the same as applying for a second mortgage because they are entirely different types of home equity loans? We’ll talk about what you have to know regarding HELOCs and second mortgages in this write-up.

Both Second Mortgages and HELOCs are Secured Loans

Your home equity serves as the loan security or collateral when you decide to go for a second mortgage or a HELOC. The difference is in how you can access the funds. With a second mortgage, you can get the funds as a lump sum while with a HELOC, you can access as little or as much as the whole predetermined amount for a set span of time. With this difference, payment for a HELOC usually fluctuates on a monthly basis while payment for a second mortgage is a fixed monthly rate.

Missing Payments Can Mean Losing Your Home

The terms of both second mortgages and HELOCs state that the lender has a right to your home equity if you fail to make payments. To access your equity, the lender will liquidate your home. With this in mind, you have to be extra careful before signing up for these loans or risk losing your home if you default.

The Most Common Reason for Both Remains to Be Home Improvement

Most people get a HELOC or a second mortgage to finance home improvement or home renovation. Lately, more people are using HELOCs for debt consolidation too.

HELOCs and Second Mortgages Need Financial Planning

Because missing payments on second mortgages and HELOCs can have serious effects on your finances and life, you have to at least have a general idea of your cash flow so that you’ll be able to manage payments and other expenses in the future. Know that just because second mortgages and HELOCs are easier to apply for than primary mortgages do not mean that repercussions for nonpayment are less severe.

Be Ready for Pitfalls

HELOCs and second mortgages come with pitfalls too. One wrong decision can mean financial ruin more so if you simply decide to get one without guidance from mortgage professionals. For instance, a lot of people have the wrong notion that they can max out their home equity and things should be fine but that is not the case. Note that the bigger the amount you take out from your home equity, the bigger the interest rate and consequences for nonpayment and delayed payment will be.

Are you ready to get a second mortgage or are you planning to apply for a HELOC? Contact us today so that you can get answers for your home equity loan questions straight from mortgage professionals!