Is it Time to Use Your Home Equity?

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.

Why Tap Your Home Equity?

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.

Are you a homeowner who’s open to try to apply for a HELOC or a mortgage refinance with a private lender? Contact us at Mortgage Central Canada today and let us walk you through your options.

 

Thinking of Using Your Home Equity or Refinancing Your Mortgage?

Do you want to change the terms of your mortgage or do you need money for a big purchase? If you’re on the fence about these, then you might also be wanting to know if it is better to use your home equity or to refinance your mortgage for funding. Read on below to help you make a better-informed decision.

Is It A Good Idea to Refinance My Mortgage?

Take a look at the interest rates. If they are currently lower than when you signed your mortgage, then refinancing might be a good idea now. You have to consider too that refinancing your mortgage means replacing your existing mortgage with another one with different terms. Your lender will calculate your new loan-to-value ratio to see if it is lower than 80% which is often the qualifying number. The lender will also look at your monthly debt payments in relation to income. They’ll ask for copies of recent pay stub, property tax bill, mortgage statement, notice of assessment, T4 slip, copies of recent assets or investments, savings accounts, and RRSPs.

Benefits of Refinancing

Getting a lower interest rate that will save you thousands of dollars over the years is the main benefit of refinancing. Another benefit is lower monthly payments. The cash that you can free up via cash-out refinance can be used to consolidate debt, invested for a venture, or saved as an emergency fund or money for higher education. Don’t forget that you may be able to change your mortgage type and other terms to help you achieve your financial goals faster.

Is it A Good Idea to Tap Home Equity?

Any payment that you make towards your mortgage will go into building your home equity. You can estimate your home equity by subtracting the amount you still owe from the current market value of your home. Once you have a certain percentage of home equity, you’ll be eligible to tap it using a home equity loan. Compared to other types of home loans, a home equity loan has a lower interest rate because it is a secured loan.

Benefits of a Home Equity Loan

A home equity loan will give you access to a substantial amount of cash that you can use to pay for home renovation, home improvement repairs, big purchases like a vehicle or an investment, and a lot more. You can also opt for a HELOC or a home equity line of credit if you think that you will have a series of smaller expenses in the near future.

Note that both refinancing your mortgage and getting a home equity loan will incur fees. You may need to pay for an appraisal, legal fees, and possibly, discharge fees as well as prepayment charges depending on a lot of details. If you have questions regarding the details of a home equity loan and mortgage refinance, do not hesitate to contact us at Mortgage Central Canada. We’re open at these trying times and happy to be of service to you.

 

What You Need to Know About a Second Mortgage

Applying for a second mortgage is not easy if you do not know what you are doing especially during uncertain times. However, now might be a smart time to get a second mortgage with the help of mortgage professionals who can assist you and put your needs as a priority. Read on below to find out the things that you must know when applying for a second mortgage.

Getting a Second Mortgage

True to its name, a second mortgage is a type of mortgage loan that you can get on top of your primary or first mortgage. It is a home loan because it is secured by your home equity. A second mortgage will allow you to access as much as 80% to 90% of your home equity depending on the specific type of second mortgage that you plan to get. Most people who apply for a second mortgage instead of a mortgage refinance do so because they are trying to avoid the fees linked to breaking a primary mortgage.

Why Get a Second Mortgage

Although there are many uses for a second mortgage, the most common reasons people cite is that they want to use the funds for a home renovation project, debt consolidation, or to pay for higher education. By getting a second mortgage, you can take advantage of specific benefits that come with each mortgage type and can help place yourself in a better financial position than your current situation.

Kinds of Second Mortgages

A second mortgage can be a smart financial decision if you know how to use it. You can choose to get a HELOC to help you pay for several smaller expenses that are coming up and cannot be covered by your savings. It is a revolving line of credit that will also allow you to reuse your credit line after payments. Think of a HELOC like a credit card that you can borrow from again and again as long as you are paying off when you can to keep your line of credit open. You can also opt for a home equity loan if you need access to a lump sum of cash for huge expenses or purchases such as for debt consolidation, investment funds, or an extensive home renovation.

Dangers of Second Mortgages

Second mortgages have a higher risk of not getting paid compared to a first mortgage. In the event of financial difficulty, any monies left will go to paying debts; however, a primary mortgage will always have first priority before a second mortgage. Because second mortgages carry a lot of risks for the lender, they set a higher interest rate for it as well as pose more requirements before qualifying someone to avail of it. Bigger institutions are typically very strict about their requirements, which is why it can be easier to apply for a second mortgage with a smaller lender.

Should You Get a Second Mortgage?

You need to take a hard and objective look at your current financial situation to gauge if you can qualify for a second mortgage. You’ll have to take into consideration that lenders will typically have slight variations in their requirements that can allow you to qualify for one and not the other. If you need help applying for a second mortgage or getting approval, be sure to contact us at Mortgage Central Canada for professional assistance. Contact us today!