World economy has taken a hit due to the months-long lockdowns and quarantines that a lot of nations had to place themselves under of. Even countries with stronger economies like the United States and Canada are not exempt from the financially crippling effects of the COVID-19 pandemic. The best way to bounce back is for households to have more purchasing power to in turn, jumpstart the economy; but that is something that is easier said than done. A lot of people have lost their jobs and sources of income, how then can they recover quicker?
Is it Time to Use Your Home Equity?
The good news is that the majority of people own their homes in North America. Owning a home means that the homeowner is sitting on a sleeping mound of financial asset in the form of home equity. When tapped, home equity can be a good source of emergency funds for households.
Unfortunately for Canada, more restrictions were placed on mortgage recently to address the housing boom as well as to control property prices. This means that it may not be as easy for many to liquidate their home equity into spendable wealth. There are also a lot of requirements, fees, and mandates that can hinder those with lower credit scores and no current income to qualify for ways to access home equity. A way to adapt to the looming economic crisis is to create easier qualifications that can allow the creation of more new home equity loans as well as approve more applications for refinancing mortgage.
It is estimated that the combined value of residential properties in the United States is at nearly $30 trillion. With this in mind, it won’t be a far out thought to estimate that Canadian home equity is also worth trillions of dollars. Given this data, hundreds of billions of dollars can easily be injected into the economy in the next few weeks if a small fraction of homeowners choose to borrow from their home equity at this time. Hundreds of billions of dollars can boost economic activity and keep everything running until businesses have had a chance to recover.
How About the Regulations?
There is talk that if the concerned agencies create a carve-out, it would be easier for lenders to have less strict requirements. It could be something that the Canadian government may look into in the following weeks to make it possible for lenders to approve more mortgage refinancing applications as well as have more slots for home equity loans.
Is it Smart to Get a HELOC or to Refinance Your Mortgage Now?
A $10,000 HELOC at 4% interest would mean having to pay only $33 per month in interest. Paying this is a cheap price to pay to enjoy extra funds and to have a means to get back on one’s feet. If regulations are relaxed, not only can more people avail of a HELOC, but more people will also be able to qualify for mortgage refinancing.