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.

 

 

What You Must Know When Borrowing Money Using Home Equity

Thousands of people borrow money using home equity in any given month, but not a lot of people truly understand what it means and how to do it. For instance, plenty of homeowners are not aware that borrowing money using home equity has a higher chance of approval versus applying for other types of loans. Read on below and find out more!

How Much Is Your Home Equity?

You can estimate a calculation of your home equity before going to a lender to borrow money. Basically, your home equity is the value of your home that you currently own. You can estimate it by subtracting your remaining mortgage balance from the current market value of your home. This means that the higher your home’s market value and the more you paid for your mortgage’s balance, the higher is the value of your home equity. A large home equity can help you qualify for loans faster, including sizable loans.

Note that your own estimate is just to give you an idea how much your home equity is. You will need a professional appraisal done to apply for loans. You need information that are as complete and as updated as possible because you will have to provide these details to the lender when applying for a home equity loan.

Applying for a Home Equity Loan

Getting a home equity loan starts with applying for it from a lender. The loan will be based on your perceived ability to pay and the value of your home equity. You can get any of the following home equity loans if you meet the requirements for home equity:

  • You can get a Mortgage Refinance by renegotiating your contract with your lender or by breaking your first mortgage contract. A penalty will have to be paid but you will gain access to up to 80% of your home equity. For someone with a big expense and want to take advantage of better interest rates, a Mortgage Refinance may be a smart option.
  • You can apply for a HELOC or a home equity line of credit. This will allow you to tap 65% to 80% of your home equity either in one go or via small amounts over a set span of time. A HELOC will also allow you to reborrow or withdraw from your line as you pay the minimum billed to you. Interest rate for a HELOC is lower than other second mortgages and you’ll also enjoy a lot of flexibility in terms of when and how much of your home equity to use.
  • You can consider getting a Second Mortgage to use on top of your primary mortgage. The downside is that you will have to be capable of paying off two mortgages at once but could be a good choice if you have a sudden need for a substantial lump sum of cash.

Remember that applying for a home equity loan means using the value that you own in your home as collateral. Your home will be at risk if you fail to pay. If you need help deciding which option is best for you to borrow money using home equity, feel free to contact us so that our mortgage professionals can answers your queries.

 

Mortgage Arrears and Foreclosures

Mortgage arrears is increasingly becoming a problem for more homeowners these days. No matter how much one’s finances are planned, it is not uncommon to fall behind on payments during months of financial difficulty. Most people do not realize how important it is to make sure that they should prioritize paying their monthly mortgages. It seems it is easy for a lot to forget that failing to pay one’s mortgage on time can result in mortgage arrears and foreclosures depending on the terms in one’s mortgage.

What to Do if You Missed Some Mortgage Payments

The first thing you should do when you realize that you’ve missed some mortgage payments is to contact your lender right away. Ideally, you should do this prior to missing any payment at all. Be sure to be as open and honest as possible with your lender so that your lender can offer a solution or a compromise that can work well with both of you. Make sure that you honour any new payment agreement with your lender and cooperate as best as you can.

Note that failing to pay your mortgage or not following through with a new payment scheme can mean hearing the word “foreclosure” from your lender. Lenders will typically avoid foreclosure because it is a lengthy and headache-inducing process. However, also note that lending companies cannot afford to let people simply not pay their mortgages. To recuperate their losses, they are within their legal rights to foreclose a home with mortgage arrears.

What is Foreclosure?

By definition, foreclosure is a legal action taken by a lender against a mortgage borrower who failed to make payments beyond the terms agreed upon by both parties. Because the home is the collateral for a mortgage loan, the lender is legally allowed to repossess a home and sell it to recover any loses from the money that the is owed.

Foreclosure can happen after a homeowner failed to make several mortgage payments. It doesn’t happen after a single missed payment. Foreclosure happens as a result of mortgage arrears, which means missing payments for a few months in a row and not cooperating with the lender in terms of payment. The process is lengthy and will mean receiving a few demand letters at first, typically at the 30 days, 60 days, and 90 days mark of missing a payment. Mortgage arrears will kick in after 90 days of non-payment. The foreclosure process will then soon follow.

The foreclosure process can vary between provinces in Canada. It is best to take initiative and address any mortgage arrears as soon as possible to avoid foreclosure. Once a property has been in mortgage arrears for more than a certain length of time, the lender can either go through a judicial sale or a power of sale for them to be able to recover their loses.

Save Your Home

The best way to save your home in case of mortgage arrears is to contact the lender or find a way to make payments as soon as possible. We may be able to offer some mortgage arrears solutions for you at Mortgage Central Canada. Contact us and we’ll discuss what we can do for you based on your situation.

 

Compelling Reasons to Tap Your Home Equity

Tapping home equity is still an uncommon idea for a lot of people although this has been increasingly becoming the norm in the past decade with the increase in home values in Canada. This can be both good and bad. It can be good because not everyone will be wise about spending money they can have easy access to. For these people, not knowing that home equity can be used this way can be good to prevent them from borrowing too much until they go deeper into debt. However, not knowing that home equity can be tapped without selling the home can be bad for people who know how to proceed with caution. These individuals are the ones who only access their home equity if there are compelling reasons and make wise decisions in terms of managing their finances. But wait, what are good and compelling enough reasons to access home equity?

When a homeowner accesses home equity, it means that the homeowner is borrowing against the actual value of the home. While this can be considered as borrowing against one’s own money, note that using more of the home equity means losing money saved up in the form of real estate property. This is why it is so important to spend it wisely. If you’re thinking about using your home equity, then be sure to at least use it for reasons such as the ones shared below.

Paying for Home Improvements

Home improvements add value to the home and can further increase home equity. More so, home improvement that focuses on function can greatly enhance the living experience of the homeowners and will make owning the home much more enjoyable.

Investing in Education

College is expensive. Postgraduate studies, even more so. The thing is, using home equity to pay for college tuition or postgraduate studies is a smart move because better education means possibly getting better jobs that can allow an individual to achieve more in life aside from just getting to a higher income bracket.

Managing Debt

Debt consolidation by tapping home equity is a smart way to convert several high-interest loans into an easy-to-manage lower-interest loan. The key is to make sure that the fees needed to access home equity via a second mortgage or HELOC will be worth the savings in the long run.

Saving for Emergency Expenses

Emergency expenses have a way of coming out of nowhere and costing much more than an average person’s savings. By using home equity as savings for an emergency, the homeowner can be sure that they got something saved for a rainy day or when expenses pile up when finances are not in a good state.

Funding Long-Term Investments

Home equity can be accessed to purchase stocks or to use as downpayment for investment real estate. Although using home equity this way carries risks, the rewards are worth it if things are managed appropriately.

With the above said, note that accessing home equity is an individual decision that should be based on several factors. There are many ways to tap home equity and they all have their pros and cons for each specific situation. Contact us if you want to use your home equity soon and we’ll be happy to answer your questions.