Second Mortgage or a HELOC? Which Is Better?

Choosing between a HELOC and a second mortgage can be confusing because both are loans that are attached to your home. Technically speaking, a HELOC and a second mortgage are both second mortgages, because you can only apply for them on top of your primary mortgage…so which is better and how are they different?

HELOC vs Second Mortgage

A HELOC and a second mortgage differs in how they are given by the bank and how they can be repaid. As mentioned earlier, both types of home loans are secured by your home, so it is very important to know how they work and to assess your capacity to pay them to ensure that you don’t end up losing your home.

How Does a HELOC Work?

A HELOC, or home equity line of credit, is a revolving line of credit that can be reused until the set limit is reached for the amount or the time period. Payment for the loan is on top of the primary mortgage and you only have to pay the amount that you use up or took out of the maximum allowable amount.

Because this is a revolving loan, you can re-borrow your paid-for credit until the terms of the HELOC state you can’t anymore. This means that if your HELOC is good for 5 years, you can keep re-borrowing any amount you’ve already paid towards it without the hassle of reapplying for a new loan.

How Does a Second Mortgage Work?

Although a second mortgage is also attached to your home like a HELOC is, the loan is given as a one-time lump sum that you’ll have to pay according to set terms. You won’t be allowed to apply for a new second mortgage until you’ve fully paid your second mortgage.

Because a second mortgage is given as a lump sum, most people who apply for it use it for debt consolidation and/or house deposits. You really have to think a lot and assess your full financial situation before applying for a second mortgage because inability to pay based on agreed terms can make you lose your home.

Is it Smart to Use These Loans as Emergency Funds?

The real answer to this is no. Why? Because with both loans, you’ll end up paying interest and putting your home at risk. Using them as backup cash for something that didn’t happen yet isn’t a good strategy. However, if you’re in a bind now and it can be a few months or more before you can recover, then applying for a HELOC or a second mortgage is a viable option.

Which Is Better?

The best answer for this will depend on your specific circumstances. Just remember that their nature and payment schemes are way different so having a clear idea of your future financial situation is paramount to intelligently choose between a HELOC and second mortgage.

Choosing between financing options can be confusing. This is why you need assistance from mortgage professionals who have a long track record of helping people get approved for loans while making sure that payment terms are doable for you. Contact us today to apply for a second mortgage or apply for a home equity line of credit.

The Smartest Way to Tap Your Home Equity

Tapping your home equity is often the most convenient way to come up with a significant amount of cash in a relatively fast way. There is no need to sell taxable holdings and incur extra taxes and all you need is an approval.

Here are 3 ways to tap your home equity with secondary home loans:

Apply for a Second Mortgage

A second mortgage also goes by home equity loan and is considered to be the most structured among the home loans, more or less mirroring your primary mortgage.

Second mortgages can have a variable or a fixed interest rate with the rate oftentimes higher than the first mortgage. They can have a set term and are often amortized in the beginning. Note that payments are very much like in primary mortgage with the principal and interest listed separately. A second mortgage also can’t be further drawn upon after being issued.

Get a Home Equity Line of Credit

A home equity line of credit, also referred to as a HELOC, is the most flexible secondary home loan in this list. There is often a minimum amount that has to be dispersed although no funds is usually released upon approval because a HELOC acts like a credit card, not a lump sum loan.

When you are approved for a HELOC, you’ll have the flexibility to just withdraw whatever amount you need as long as it does not exceed your limit. Most HELOCs nowadays come with a debit card and/or a checkbook making your life even easier when it comes to accessing your funds. Another feature is that you can avail of future amortization because of this loan type’s structure. Payment isn’t as strict because you can choose to just pay for the interest each month as long as you can pay for your entire balance at the end of the loan term.

Go For a Cash-Out Refinance

A cash-out refinance is different from the two other secondary home loans above because this option doesn’t necessarily involve a second loan. In a cash-out refinance, the homeowner can just refinance the home for a larger sum and get the difference as a cash-out. A downside would be that this type of loan can have really high closing costs depending on several factors.

Tap Your Home Equity in A Smart Way

Don’t forget that failure to pay any of the 3 secondary home loans above will mean losing your home to foreclosure; so choosing an option that fits your ability to pay, and not just your desired amount to borrow is crucial. Amounts that will be granted to you will also be dependent on several factors such as the desirability of your location, your home’s value, and your ability to pay. You’ll have to have an idea of your future cash flow before signing anything. To be on the safe side, it is best if you can consult with refinancing or second mortgage experts before deciding on one.

Need help and more information about the smartest ways to use your home equity? Contact us and we’ll assist you soonest!


Why Millennials Should Invest in a Home Now!

Owning a home is perhaps one of the smartest long-term investments towards one’s future an individual can make. Home equity can provide a good amount of security for when someone is older and can even be an emergency source of cash, such as when you apply for a HELOC. No wonder millennials compromised 35% of home buyers in 2015 according to the National Association of Realtors. If you’re a millennial who’s still on the fence about purchasing a home, below are our top reasons why you should go for it now!

Do it for the Tax Breaks

Do you know that the interest you pay on a home you own is tax deductible each year? This means that you’ll get the most tax breaks in the early days of you paying off your home because the majority of those payments are interest. Can we hear a yay for tax breaks when you need it the most?

Invest in a Home to Build Equity Now

The earlier you buy a home, the more equity you build because the sooner you can start paying your home’s principal balance, the faster you’re able to own a fully-paid home.

This is good because you can use your home equity to fund various needs in the future by applying for a home equity loan. The funds from this home loan can be used to fix your credit through debt consolidation, to finance another investment, or to pay for huge expenses such as a dream wedding or college education.

Be sure that you don’t end up using your home equity for frivolous things! Any loan taken against your equity means putting your home on the line.

Interest Rates Are Still Low These Days

Mortgage loans have incredibly low interest rates these days, making it even more attractive to get a mortgage loan to finance a home. Mortgage interest rates are at around 3% or even less. Think of how much you’ll save as compared to when rates climb to as little as 5%. You’ll be saving tens of thousands of dollars!

Think of it as an Investment

The odds that your home’s value will be markedly higher a few years down the road is far greater than the opposite scenario, so it just makes sense to buy now that market conditions are very favourable towards buyers.

A market crash isn’t likely to happen anytime soon so you’ll still end up making bank should you decide to sell before a rumored crash. There’s not that much to lose and a lot to gain especially if you’ll compare owning a home to paying monthly rent that’s just like placing your money into someone else’s pockets.

Ready to seek expert help in buying your first home or perhaps considering getting another one as an investment? We can help! Talk to us today! There are a lot of financing options that we can assist you with to make owning a home closer to your reach.


4 Genius Ways to Use a Home-Equity Loan

Owning a home comes with the benefit of being able to build wealth through home equity. The good thing with having a good amount of home equity is that you can tap your equity when you need funds or need extra cash. However, you must be careful that you don’t end up using it for frivolous things. Here are 4 Genius Ways to Use a Home-Equity Loan so that you’ll use yours the smart way!

Use Your Home Equity Loan to Invest

Home equity loans usually have a low interest rate, which would be at around 5%. If you take out some money from your home equity loan and use it for investments that yield a return of more than that, then you’d be making quite a considerable amount of money.

The problem with using your home equity loan to invest is that losses could be great if you don’t know what you’re doing. However, if you research and think through investments before picking one, the returns can be very rewarding. The key is in not putting all your eggs in one basket. Diversify!

Pay for a Child’s Advanced Education with Home Equity Loan

Whether you’ll use your loan to fund a child’s college education or post graduate studies, it will be a smart move because higher educational attainment typically means better work and income opportunities in the future.

A word of caution, though. Make sure that you save enough for your retirement and don’t bank on your child’s education taking care of your needs when you’re older. You can also save your home equity and tap it later as extra retirement fund.

Use Your Home Equity Loan to Pay High-Interest Debts

Debt consolidation is perhaps the smartest way to use a home equity loan if you want a low risk option. You can’t lose when you use your home equity loan to pay off car debts or credit card debts because no matter how you look at it, you will be saving money in the long run if you consolidated a considerable amount of loan, to begin with.

The key to make the most out of this is to ensure that you only agree on terms that you can honor. This is important because you can lose your home if you fail to make agreed payments. Remember too that this will usually give you the most benefit if you’ve garnered a lot of high-interest debts because you’ll have to ensure that the benefits should outweigh the risks.

Finance a Major Home Improvement with a Home Equity Loan

Carefully planned home improvement can increase the value of your home and build you more equity. The best returns are usually a result of a kitchen makeover, the addition of a bathroom, or the renovation of the master suite. Some home improvement will work better if you’re planning on a renovation to help sell your home. You can discuss this with your mortgage broker so you can choose the best way to go forward for you.

Thinking of applying for a way to tap your home equity? Contact us today so that we can discuss the best ways that will fit with your needs!

How to Use Your Home Equity to Consolidate Your Debt

Debt in Canada has reached a record high. Canadians now owe $1.7 for ever $1 of disposable income, as shared by Statistics Canada. These numbers are alarming and it is a consolation that our housing market is strong. You might love to know that there’s a huge possibility that you’ve built up more equity than what you initially thought.

Equity built up in your home can be used to help you get out of debt if you use it the smart way. It isn’t easy to get out of debt when you’re simply trying to stay afloat keeping up with paying high interest consumer debts like credit cards and auto loans. Why not borrow your home equity to consolidate your debts then?

Why Borrow Your Home Equity?

It sounds counterproductive to borrow money to pay off debt, but know that using your home equity to consolidate debt means swapping huge interest-rate debts for one with very low interest rate. It helps too that once you do this, you’ll only have one easy monthly payment to think of instead of trying to track several.

Consolidating debts using home equity isn’t a new concept, but not many are aware of the different ways this can be achieved. We’ll talk about those ways below.

Apply for a Second Mortgage

A home equity loan, also called a second mortgage, is one of the easiest ways for you to use your home’s equity for debt consolidation. It will also allow you to use up to 85% of your property’s appraised value minus any outstanding mortgage balance from your first mortgage.

Getting a second mortgage will enable you to get a fixed amount of money that you can pay for a fixed amount of time as stated in your loan. It doesn’t replace your first mortgage so you’ll be responsible for making 2 payments per month once approved but the benefits are immense!

The interest rate of a second mortgage is really low so most of the payment you’ll be making will go towards the repayment of the loan. Compare that with credit card interest of about 30% and you can see that by not consolidating you are actually paying nothing but the interest in your credit card.

Get a Home Equity Line of Credit

Applying for a HELOC to use your home’s equity for debt consolidation is another smart move. It is different to a second mortgage because this one doesn’t give you access to funds in a lump sum, rather this gives you a limit as to how much of your home’s equity you can use. You are free to use as little or all of that limited amount at any given time.

Because of the revolving credit nature of a HELOC, you are free to use a huge chunk of it to consolidate debt, pay off a portion of that, and take out small amounts for emergencies and the like. This option gives you more flexibility and freedom as compared to a second mortgage.

Try a Traditional Line of Credit

A traditional line of credit could be great but know that it is very challenging to qualify for. You’ll need an impeccable credit history and possess a great credit score. We all know that most of those who have a lot of loans don’t have that, to begin with.

Need more information about how you can effectively consolidate debt? Contact us and we’ll be sure to discuss possible mortgage related financing options for you.

The Best Ways to Use Your Home Equity

Many people have been fortunate that their homes’ market values have increased since they bought them, resulting in a marked increase in home equity as well. This is possible because equity is defined as the difference between a property’s market value and the mortgage still owed by the home owner.

So You’ve Got Lots of Equity, Now What?

Some people choose to sell their home to capitalize on the marked increase in value. There is nothing stopping you from doing the same but do you really want to move out of your home and restart again in a new neighbourhood?

If the answer is no, then fret not. There are a lot more other ways you can tap into your home equity without going for a home sale. You can choose to refinance, go for a Home Equity Loan, or try applying for a Home Equity Line of Credit.

But here’s the thing. Cashing out just because there is money available for you is the wrong approach to using your home equity. You have to make tapping into it worth the trouble since going for any of those mentioned will incur fees.

The good news is that if you have plans or project that you’ve been putting off because you don’t have the funds to pursue them, then using your home equity to turn those projects and plans into reality is a smart solution!

Below are the best ways that you can use your home equity to improve your life:

Funding A Home Renovation

Paying for a home renovation is perhaps the most popular way for homeowners to use their home equity. In fact it is estimated that $12.8 billion of the $41 billion worth of equity that was taken out in 2016 was used by homeowners to fund home repairs and home renovations. This is a smart move because improving your home in any way will only serve to further increase its value.

Investing in Education

Investing in your or a family member’s education is a great idea. Further education means better professional opportunities that will result to a higher potential income in the future.

Purchasing Another Property

Your existing equity could be used to help finance the down payment for an investment property as well as needed renovations. You just have to be sure that you’re not spreading your finances too thin and that you have enough cash flow to pay back your equity within a reasonable amount of time.

Consolidating Debt

It may sound absurd to use a loan to pay for debts but if you do the math, you’ll see that using your home equity to consolidate debts is actually a very smart move. Why? Because doing this will allow you to pay high-interest debts and improve your credit score. This means that you’ll be saving thousands of dollars worth of interest payments!

Want to tap your home equity? Let our professional mortgage brokers help you. We assist clients from application until they are approved. Contact us today to find out more details!

Build Home Equity Fast in Toronto With These 4 Tips!

Building your home’s equity as early as you are able can be of great advantage for you in the future. This is true though a lot of people don’t really know what equity is and how to build it.

Equity is the value of your home that you own. It is the difference between the property’s market value and the money still owed. Once equity is built, it can serve as a possible cash cushion should a need arise in the future or could be used to get fast cash when investing in another property.

Home equity is typically built up over a period of years as the homeowner continues to make payments on the property. However, do you know that building your home’s equity doesn’t have to take years or even decades? We’ll be sharing with you our top 4 tips to building home equity fast and easy!

#1  Go For A Larger Down Payment

It is tempting to buy a property and just pay a low down payment because you were given the chance to do so. That is okay but consider that doing that will also mean taking longer to pay for the home in question. Try putting in as much down payment as you can afford. This way, you’ll be off to a great start!

#2  Appreciate At A Faster Rate By Paying More Monthly

By paying more towards your principal, not only will you end up fully owning your home faster, but you’ll also be setting yourself to building your equity. Do you know that by paying an extra month’s worth towards your principal each year you’re potentially shaving off more than 5 years from your loan’s schedule? Sure another month’s worth of payment might not be easy on the pocket but a few hundred dollars extra payment per month would have the same effect while being easy to do for you.

#3  Go For A 15-Year Mortgage Plan

Most people automatically get a 30-year mortgage plan because they think that a 15-year one will mean having to come up with twice the ‘usual’ for payments each month. The truth is that the difference may not be as big as you think so better ask your mortgage lender to compare the needed monthly payments for both a 15-year loan and a 30-year one. This way, you will be better informed to make the right decision.

The above is true because the longer you take to pay for a loan, the more the initial value is inflated by the interest rate. A longer term means you end up paying more for interest as the years add up. More so, the difference of the monthly payments between the 15-year mortgage and the 30-year mortgage might be as little as a couple of hundred dollars. Imagine the savings in both money and time when you’re able to pay for your home faster.

#4  Be Smart About Home Improvement Projects

The right home improvement projects add a lot of value to your real estate. A few thousands worth of upgrades can increase your home’s value by $20,000 to $50,000 more so if you choose to go for a kitchen upgrade or adding another room to the house. Landscaping is a huge value-booster too, with possibilities of adding 4x the value of what you spend. By increasing your home’s market value, you’ll be increasing your equity as well.

Interested to know about how you can use equity you’ve built in your home? Contact us today so we can talk about the various types of home equity loans and how they can help you in the future.

Is A Second Mortgage A Good Financing Option For You?

It is no secret that property values have gone up in Canada in the last 15 years. People living in certain areas like Toronto and Vancouver who bought their homes more than 2 decades ago have more than doubled the value of their properties.

The recent huge increase in real estate market values mean that the equity built in their homes by homeowners have gone up as well, making it a good source of funds that is just waiting to be tapped by getting a second mortgage.

Do You Really Need A Second Mortgage?

Getting a second mortgage is a good idea if you need a substantial amount of cash for financing a college degree for your child or funding a home renovation project. It can pay for any event or expense for which you don’t have the cash in your savings for.

Note that once approved, a second mortgage is still an obligation that has to be paid. Expect that the interest rates will be higher than that of a primary mortgage. You can try to negotiate a lower rate if you have verifiable and consistent income, good credit score, substantial equity, and the luck of having your property in a coveted neighbourhood. There will also be legal and broker fees that you’ll have to pay for the second mortgage to push through.

Who Lends Money for A Second Mortgage?

Private lenders and small financial institutions are the usual providers for second mortgages. They are not easy to seek out and bet, so most individuals who want to get a second mortgage is better off getting the assistance of a mortgage broker who specializes in second mortgages.

How About Broker Fees for a Second Mortgage?

It would be unfair to think that mortgage brokers do nothing to deserve payment for their efforts. The fees are not cheap and this is why mortgage brokers will typically make sure that the other party knows what the fees actually mean before giving an answer.

Broker fees for a second mortgage is affected by several factors such as how much time the broker will have to spend to secure the second mortgage and how much money is being borrowed. Generally speaking, the bigger the money being borrowed, the lower the broker fees are for the second mortgage in terms of percentage. Note that legal issues such as eviction, foreclosure, or marriage separation will mean a higher broker fee.

Will Appraisal Be Required?

It is typical for a lender to prefer a personal inspection of the property to ensure that it is worth the risk for the lender. You may choose to get your own appraisal though most lenders will have a list of professional appraisers that they trust.

Should You Hire a Lawyer?

Though you might feel that you don’t need the services of a lawyer to save on legal fees, getting a lawyer to review your second mortgage’s terms and ensure that everything is in place will protect you in the long run. The fees can range from $1,000 to $2,000 but it is an investment that will ensure you don’t have to pay for things that you were not informed about prior to signing the terms for your second mortgage.

We hope that this write up was able to answer most if not all of your questions about getting a second mortgage. Should you have more concerns that were not addressed in this, feel free to talk to us at Homebase Mortgages.

Looking for a professional mortgage broker to help you get approved for a second mortgage? Fill up our contact form and we’ll get back to you soon!

What is a Second Mortgage And How Will It Work?

A second mortgage is another loan taken with a different mortgage lender on a property that has an existing mortgage. The person who applied for the mortgage must still pay the primary mortgage with the addition of also having to pay for the second mortgage.

Reasons Behind Higher Interest Rates On A Second Mortgage

When a property is mortgaged for the second time, the lender who gives the loan takes on more risk because he/she is only in the second position to have a claim on the property. An illustration of this is when a homeowner fails to pay, the property will be taken into possession and the first mortgage’s lender will be paid out first. This means that the second mortgage’s lender may not get paid in full or not paid at all. This is why the interest rates for second mortgages are almost always higher then what is charged for a principal mortgage.

Why Do Canadians Get A Second Mortgage?

The usual reasons for getting a second mortgage are as follows:

  • To fund a home renovation
  • To have cash for unexpected expenses such as medical emergencies
  • To pay for high interest debts therefore consolidating those debts
  • To fund expensive tuition fees for post graduate studies or college
  • To have cash for a dream wedding or vacation

What Are the Advantages and Disadvantages of a Second Mortgage?

As with all types of loans, second mortgages have a set of advantages and disadvantages. Below is a summary of each to help you make a better informed decision.

Second mortgage advantages are:

  • It is easier to apply for because there are many providers for it like private mortgage lenders, credits unions, and banks.
  • You can tap up to 80% of your home’s appraised value provided the existing balance you have for your first mortgage has already been subtracted.
  • It is available in 1-year terms and most require interest-only payments.
  • There is no need to discharge your current mortgage so you won’t be charged penalties and fees for such.
  • Anyone who owns a home with a primary mortgage and a decent credit history can apply and be approved for a second mortgage.

Second mortgage disadvantages are:

  • You have an increased risk of foreclosure in the event that you default on your loan. The second mortgage lender can foreclose your home by purchasing the first mortgage.
  • Because it poses more risks for the lender, a second mortgage has a higher interest rate.
  • Repayment might be required in as little as a year but you’ll be bound by terms which can last as long as 30 years.

How Can Someone Qualify for A Second Mortgage?

Each lender has their set of terms before they approve your second mortgage application. They will look for the following:

  • Equity that is high enough to be worth the investment risk.
  • Income that is substantial enough for you to be able to make payments.
  • Credit Score that is good enough to qualify for a lower interest rate. They might consider those with a less than appealing credit score but they will surely charge hefty interest rates.
  • Property desirability is important. Lenders need to be sure that should you default on your payments, your property has good enough value on the market so they can cover their possible loses.

A second mortgage will greatly help you financially if you are cash poor but possesses substantial equity in your property. Allow our mortgage professionals to help you apply for a second mortgage by contacting us soon!

Who Owns the Home After A Home Equity Loan?

The issue of home ownership is often hard to understand for quite a lot of people who’ve never applied for a home equity loan before. In this article we will tackle the common misconceptions and cover the basics of home equity loans. We hope that after reading this article, you will be better equipped on making an informed decision whether applying for a home equity loan is for you or not.

What Really is a Home Equity Loan?

A home equity loan which is also known as reverse mortgage, is a type of loan that allows a homeowner to use the equity they have built up. The equity is the value of the difference between the home’s current market value and any amount still owed. That equity can be used as collateral for a loan, which gives us home equity loan.

How To Get a Home Equity Loan

Applying for a home equity loan typically requires that the homeowner possess a good credit and a good ratio of combined loans to assets. This is because these factors can make the transaction a lot less risky for the lender who will provide the funds for a home equity loan.

The amount that can be tapped for a home equity loan will vary depending on several factors such as repayment goals, value of equity, location of property, current economic and real estate climate, and the lender’s terms.

Debunking Home Equity Loan Myths

Here are the reasons why these common home equity loan myths are really just myths:

  • Pre-approval of a home equity loan does not guarantee that you will be fully approved. It is simply a screening step in the process.
  • You also won’t have to use the money on the house. You can use it anyway you want as long as you pay in the end.
  • Home equity loans are not expensive. The terms are often reasonable and will be discussed with you before you sign any papers.
  • You will not lose your home if a spouse passes as long as you are a co-signatory for the loan. The house will go to the lenders if the owner or person who signed the loan passes or moves out.
  • You also will not have to sign over ownership to the lender. Again, you are your home’s owner until you move out or pass away.
  • It is possible to apply for a home equity loan even if you have an existing loan. It is just that any existing loans will be deducted from your equity.
  • Your heirs will not end up paying more than what the home is worth as well because the debt cannot exceed the home’s value to begin with.
  • Lastly, you will retain full ownership of your home and the lender cannot force you to move out.

The best and safest way to go about getting a home equity loan is to get the help of mortgage professionals who will connect you with the right lenders and help you avoid the possible pitfalls.

Interested in applying for a home equity loan but do not know where to start? Let us guide you from application to approval! Contact us today!