Is It A Good Idea to Pay for A House Remodel Using a Home Equity Loan?

One of the smartest things to do before selling a home is to make sure that things are in great shape before listing the home for sale. Doing this will make sure that the home will fetch a good price. However, this is not easy to pull-off for those who do not have plenty of cash that can be used to pay for a house remodel. This is where having a substantial amount of home equity helps. Homeowners with a high home equity can pay for a house remodel using a home equity loan. The question is, is this a good idea?

Why Go for a Home Equity Loan?

Unlike other loans, a home equity loan uses the value that a homeowner owns in a home as collateral. Because a home equity loan is a secured loan, it is easier approved and comes with a lower interest rate than unsecured loans. It is true that tapping home equity can be scary for some, but know that with proper planning and money management, using a home equity loan to pay for a house remodel is not only a good idea, it is a great one!

Nobody wants to sell a home for less than the price that it was bought for. The hard fact is that this is the case for a lot of people more so if the location turned bad or if the home was poorly maintained. To make sure that the home’s value does not depreciate, regular repairs must be done and some features should be upgraded periodically.

When to Use a Loan

Paying for home improvement in cash is ideal but not everyone has a large sum of money that can be used however and whenever. Using a low-interest loan like a home equity loan is the best-case scenario for a lot of people instead of taking a loss by not upgrading or taking out an expensive personal loan. Note that one should be careful with spending even when using funds from a loan secured by home equity.

Take into account that using a home equity loan to pay for a house remodel is an investment and not really an expenditure. After some much-needed remodeling and improvement, an old and dilapidated home can turn into a beautiful and functional home with a high resale value. Even an emergency remodeling or repair can turn into a sound investment when chosen wisely and done the right way.

Important Things to Note

Keep in mind that home’s value can play a huge part in what becomes of the home equity. There are many factors that are related to property value aside from renovations. With this said, using a home equity loan to pay for a house remodel that will, in turn, further increase home equity is certainly a good idea.

If you’re seriously considering tapping into your home equity, be contact professionals like us in Mortgage Central Canada. We’ll be happy to answer your questions as well as guide you in in choosing which home equity loan product is best for your needs.

Get Rich with Home Equity

Do you know that just by owning a home, you are significantly wealthier than someone who makes the same but is renting? This is because any money you pay for your mortgage goes towards increasing the value of your home equity. Your home equity is essentially your deposit or ‘forced savings’ in the form of real estate. Once you’ve paid off your mortgage, then you have a huge nest egg or savings that you can access using home equity loans when needed. Yes! You can access your home equity without having to sell your home!

Once homeowners become aware of how rich they are through their home equity, a lot of them get tempted with accessing their home equity via a loan. Note that while it is smart to use home equity for investments, improving one’s financial status, consolidating loans, and funding home renovation projects, some uses for home equity is not as smart as other uses because they don’t add value to the home, yourself, or overall financial status. It is better to be careful than sorry. Now that we’ve got this part covered, how does one get rich with home equity? Find out below!

Try Not to Move Often

Buying and selling homes come with costs. If you move houses every few years, the cost can quickly add up. By not moving too often, you save money that you can towards paying off your mortgage and therefore increasing your home equity.

Choose an Equity-Rich Home

An equity-rich home is a home that has a huge potential to increase value after a bit of improvement or one that is located in a sought-after neighbourhood with increasing property prices. An equity-rich home will allow you to grow home equity fast and for much less money, time, and effort.

Plan Improvements Wisely

There are home improvements that are nice to have and some that really make your home more desirable and valuable. You’ll have to learn to differentiate and try not to go overboard with customizations. A home with extra functionality but has room for more has more value than an overly-customized home that nobody else wants because buyers feel like they are intruding.

All About the Location

Choosing a home location isn’t just about convenience but also planning for the future. If you can, move into a neighbourhood that has better long-term forecast than another that you might really like. It is also best to choose a home in a location that can accommodate your changing needs down the road so you won’t have to move again after just a few years.

Look Forward to Being Equity-Rich

There is nothing wrong with wanting to increase your home equity and planning accordingly. There is nothing wrong with treating your home equity as a timed savings account that you can use later such as when you plan to retire. It is great to be equity-rich because you will have much more financial room for maneuvering should the need arise.

Do you need more ideas about increasing your home equity? Or do you want to use your existing equity to further boost your home’s value? Whatever you may have in mind, we can help! Contact us at Mortgage Central Canada and we’ll surely answer your questions to assist you towards better financial decisions.

 

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.

 

Try These Affordable Renovation Ideas to Boost Your Home’s Value!

Homes are expensive. For most people, buying a home is the most expensive purchase they will ever make in their life and is a huge investment. It only makes sense to want to protect that investment and want it to grow. But how do you grow a home investment and how do you protect it? Aside from having home insurance, a home needs to be taken cared of and updated every few years for repairs and features enhancement. Careful planning of home improvement projects and home renovation ideas is a must! Below are some of our affordable recommendations for those who want to increase their home’s value!

Colour Scheme Revamp

A colour scheme revamp is only as expensive as the cost of paint. Repainting a room can instantly refresh it and cost only a few hundred dollars but can increase a home’s value by a few thousands. Good colour emphasizes features, improves lighting, and smoothens wall imperfections.

Think About Landscaping and Curb Appeal

Curb appeal sells. A little tender loving care for the lawn can improve home value by three-fold compared to the cost of lawn care expenses. Additional structural improvements such as walkways can add thousands to a home’s value. You can also go for a garage door repainting or replacement, try painting the front door, adding lighting, and upgrading the house number and mailbox. First impressions make a huge difference when it comes to home value. The key is to not go over the top and make universally pleasing additions that make the home more attractive.

Replace Old Windows

Replacing old windows usually costs around $3,000-$10,000 but the energy savings per year can recuperate that amount in just a few years. More so, new windows add a lot of cosmetic value to a home plus bring more sunlight inside. A home that is energy-efficient, pretty, and has good lighting usually sells for a lot more. A good market price means bigger home equity for the homeowner too.

Energy-Efficient Upgrades

Under insulation can rack up thousands of dollars in energy bills but the cost of adding extra insulation is usually at just around $1,000-$2,000 for an average-size home. If the home is in a particularly cold location, the right insulation can bring significant savings that are very attractive for possible future buyers.

Go Hardwood

Lots of people are worried about installing hardwood floors thinking they are not only expensive to install but also a pain to maintain. While it is true that installation can go around $10,000, there are many finishes available these days that make maintaining hardwood floors easier. More so, if computing cost per square footage, going for a hardwood floor may turn out to be cheaper than opting for carpeting.

Want to boost your home’s value with affordable renovations but currently low on funds? You can use your existing home equity to fund home renovations! Contact us so we can tell you more about how to accomplish this with a home equity loan as well as the possible long-term benefits for you.

 

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.

 

Is It Worth it to Refinance Mortgage for Debt Consolidation?

Debt consolidation has many benefits, one of which is avoiding paying huge interest rates. With debt consolidation, paying debt is made much easier because instead of having to remember paying a few bills each month, you’ll only have to remember paying one. With these said, is it worth it to refinance mortgage for you to consolidate debt?

Getting Out of Debt

Many Canadians are weighed down by debt. Almost everyone who isn’t from a privileged background has car payment loans, credit card debts, student loans, and many other kinds of debts. It is easy to forget one or to get buried in paying just the interest in an effort to stay afloat. The problem is, handling multiple high-interest loans is tricky and if your plan is to just keep paying the interest, the loan will still get larger over the course of a year. Debt consolidation is the way to go.

For a lot of people, debt consolidation means taking out another loan. Most debt consolidations loans still come with high interest although a bit lower than say, credit card interest. Homeowners have a chance to save up on interest by applying for secured home loans such as a home equity line of credit (a HELOC) or going for a mortgage refinance for debt consolidation.

How Does Debt Consolidation Work?

So, a quick backgrounder. Debt consolidation is a way of combining multiple high-interest loans into a single loan that should be easier to pay for the debtor. The debt consolidation loan is taken to pay all remaining balances on multiple loans, effectively closing the other debts.

The main advantages of debt consolidation are that the borrower gets to choose a single loan with a lower interest than having to deal with multiple debts and bills, and, saving a lot of time and money in the process if properly planned out and executed. In other words, debt consolidation is a good way to pay debt for individuals who have a reliable and steady income and want to make their monthly debt payments more manageable and affordable.

Is It Worth It to Refinance Mortgage for Debt Consolidation?

Refinancing mortgage for debt consolidation is a way to get a lower interest payment plan. Most credit card debts charge 15-30% interest per month, but a mortgage usually just charge around 5%. Even considering all the fees the process of getting a mortgage refinance will entail, it is still possible to save thousands of dollars this way. Note that a debt consolidation refinance typically involves resetting an existing mortgage at a lower rate at the present time. This frees up some equity or the homeowner can pull out some equity to pay other debts. Closing costs will usually be at around 1-5% of the total loan but this amount is still low if a debtor can end up saving between 10-20% in interest per month.

Is it worth it to refinance mortgage for debt consolidation? The short answer is YES! If you want a more detailed response or interested to know how this applies to your specific situation, do not hesitate to contact us. At Mortgage Central Canada, we’d be happy to assess how debt consolidation can help get you out of debt.

 

Popular Debt Consolidation Loan Options in Canada

There are so many debt consolidation options in Canada. There are about 8 that are available for everyone with their own sets of pros and cons depending on someone’s needs. In today’s article, we will talk about the most popular ones especially for individuals who are self-employed or may have a less-than-stellar credit score.

Use a Debt Consolidation Loan to Take Care of Debt

A debt consolidation loan is when money is given by a finance company, a bank, or a credit union as a loan to someone so that person can pay off outstanding debts and ‘consolidate’ or ‘combine’ them together as one big loan.

Below are advantages of debt consolidation loans:

  • Having only 1 monthly payment to pay
  • Having a set time of typically 2 to 5 years to pay the loan
  • Low fees compared to other loans

The interest rates for debt consolidation loans are usually negligible if via a credit union or a bank, but that is dependent on someone’s credit score, net worth, and if there is collateral. They usually take any good asset that they can sell if the borrower fails to pay the loan. Banks usually charge interest rates of between 7% to 12% while finance companies usually charge more than 30% for unsecured loans or averaging at 14% for secured loans.

Note that debt consolidation loans usually require collateral, have a higher interest rate than a home equity loan, and require a decent credit score. It is very rare for banks to approve a debt consolidation loan without security unless someone can prove to have a high net worth, a co-signer, or a very strong credit score

Use a Second Mortgage or a Home Equity Loan to Consolidate Debt

Refinancing one’s mortgage, getting a home equity loan, or a second mortgage all just means that a bank or a private lender will lend the borrower some money against the borrower’s home equity. This means that if a home is worth $500,000 and the borrower still needs to pay $200,000, then that means that his or her home equity is $300,000. When a borrower wants to tap into that home equity, a mortgage refinance, home equity loan, or second mortgage will be the way to go to access funds for debt consolidation. The second mortgage is paid on top of a first mortgage. You can talk to us to learn more about a second mortgage, a mortgage refinance, or a home equity loan.

Interest rates for second mortgages are typically higher than those for a first mortgage. On very rare occasions, it is possible to get nearly the same rates depending on a lot of factors. It is also possible to combine the interest of your first mortgage and your second mortgage depending on the lender and their due dates.

Second mortgages are great for consolidating debts because they usually have low-interest rates and flexible payment arrangements. The downside is that there are lots of fees and you are required to have a certain amount of equity.

On the fence whether you’ll apply for a debt consolidation loan or get a second mortgage? Contact us and we’ll be happy to discuss your options according to your needs.

8 Common Questions About A Second Mortgage

It is nearly impossible to have never heard of a second mortgage these days. Perhaps you’ve heard enough to start wondering why more people are getting a second mortgage or getting curious to know how getting a second mortgage may benefit you. We’ve compiled the answers to the most frequently asked questions regarding second mortgages here.

Are There Types of Second Mortgages?

There are several types. The most common ones are HELOCs and home equity loans. A second mortgage that is given as a lump sum is categorized under general home equity loan while one that is given as a revolving line of credit is called a HELOC.

What Collateral is Used?

The value that you own in your home, or your home equity, is the collateral used in a second mortgage. This means that not paying can result to foreclosure so you better be sure to read the terms before getting one.

What Are the Common Uses for a Second Mortgage?

Debt consolidation of high-interest debts and paying for home renovation are the most common reasons cited by those who apply for a second mortgage.

Are Interest-Only Payments Possible?

Yes, paying for just the interest on a monthly basis is possible for some types of second mortgages. This is a useful feature to look for when you’re planning to pay for the loan after getting an expected huge windfall or after you’ve sold the home.

How Can You Use Funds from a Second Mortgage?

Once approved for a second mortgage, you are free to use the funds however way you want. You can use it to invest in a business, invest on the home by paying for renovations, pay for expensive tuition fee, finance a lavish wedding or grand vacation, consolidate debt, and more.

Is There a Limit to the Amount That Can Be Borrowed?

Generally speaking, you may borrow up to 80% of the value of the home equity that you’ve built up. This means that if you have $100,000 home equity, you can access as much as $80,000 in the form of a second mortgage.

Are There Fees to Pay?

Besides the interest, you’re expected to pay certain fees depending on which of the types of second mortgages you’ve applied for. This is best discussed with a mortgage professional so you can have a better grasp of what fees you can expect and how much.

Are There Differences in Interest Rates?

The different types of second mortgages come with different interest rates. The biggest factor affecting this is the risk that the lender is taking by lending money to you. There are also instances that the same types of second mortgages will have varying interest depending on the terms set by the lender. For this reason, make sure to compare interest rates before finalizing your second mortgage application.

Do you have more questions about getting a second mortgage? Feel free to contact us so that we can address your queries. Our mortgage professionals will be happy to respond to additional questions you may have about applying for a second mortgage.

 

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.

 

The Most Popular Reasons to Get a Home Equity Loan in Canada

More Canadians are getting home equity loans in recent years to make use of rising home prices and low-interest rates but these are not the only reasons why they are tapping into their home equity. Below is a compilation of the top reasons why people get a home equity loan in Canada.

Home Equity for Debt Consolidation

Getting a debt consolidation loan tops the list of uses for home equity in Canada. People go for it because loans that are tied to residential equity have a significantly lower interest rate as compared to other types of loans. By using home equity for debt consolidation, homeowners can manage their various debts faster as well as save money on interest.

Home Equity for Paying CRA Tax Money

A borrower who owes back taxes will not be lent new loans by banks unless the homeowner applies for a loan backed by their home. A short-term loan like this can help someone sort out their taxes and manage their financial issues.

Home Equity Loan for Spousal Buyout

A divorce often means dividing conjugal assets so that each party walks away with their half. This isn’t very easy to do when most of the couple’s assets are tied to their property. A home equity loan will allow one spouse to keep the family home and pay-off the other party for a clean break.

Home Equity for Home Renovation

A huge percentage of home equity loans taken in recent years were made for the purpose of funding home renovations. By using home equity for home renovation, a homeowner can have access to funds to improve their home and increase their property’s value. By doing this, it will be easier to refinance mortgage later or take out some other loan when needed.

Home Equity for Business Loan

It takes money to start or expand a business. However, it is often not easy to sway investors to want to put their money in someone else’s business. By tapping home equity for this purpose, a homeowner can take advantage of using what he or she already has and with friendlier payment terms to as compared to other business-related loans.

Home Equity Loan for Big Purchases

Trying to purchase a home or a car with a loan when you’re self-employed can be very challenging in Canada. Luckily, homeowners can take advantage of the different types of home equity loans to buy a home, a rental property, or a dream car. This is great news for the approximately 15% of Canadians who are self-employed!

Home Equity for Construction Loan

Building a house from the ground up is very expensive. The good news is that if you’re building your second home you can make use of your current home’s value to help fund the construction.

If you’re interested to apply for a home equity loan in Canada, you’re at the right website! Contact us and we’ll walk you through with what you need to know and help you get your loan approved!