Read This if You’re Applying for a Home Equity Loan

Applying for a home equity loan is getting more attention these days as more people need access to the value they’ve built up in their home equity. As a type of second mortgage, a home equity loan helps people get a lump sum of cash that they can use to achieve their financial goals, may it be debt consolidation, home renovation, more investments, or higher education.

The Good About a Home Equity Loan

A home equity loan comes with pros and cons same as with other types of loans. It can be a relatively easy way to access a substantial amount of money as the home equity is used as collateral. It can be tempting to apply for one as any interest can possibly be claimed as a tax deduction, not to mention that it already enjoys a lower interest rate compared to other loans because it is a secured loan.

The Bad About a Home Equity Loan

Because a home equity loan is secured by the home equity, there is a risk of losing the home if the debt is not paid in time. It is also secondary only to a primary loan in the event of foreclosure to there are additional costs upon approval other than the closing fee.

Should You Get a HELOC or a Home Equity Loan?

Most people are confused regarding the difference between a HELOC and a home equity loan. They do sound alike; however, they differ in how the funds are made accessible to the homeowner. With a HELOC, the borrowing homeowner is given a line of credit whereas with a home equity loan, the loan is given as a lump sum of cash. Repayments come later for a HELOC while with a home equity loan, there will be fixed monthly payments until the loan is fully paid off. What is best for you depends on how much cash you need, your cash flow, and your ability to repay together with other factors. Your mortgage professional will delve into this further with you before finalizing your application for approval.

How to Get a Home Equity Loan

To get the best terms, you should consider inquiring from several lenders to compare interest rates, costs, possible loan estimates, and more. If you can, work with a mortgage professional to make this process easier for you. Once you send in an application, the lender will check your credit and ask you for an appraisal to properly gauge the value of your property. The entire process can take a few days to a few weeks depending on each lender’s requirements.

Poor credit is usually not a detrimental factor for you to get approved. What matters the most is your home equity. Based on this and other factors, the lenders will compute what loan amount they are comfortable lending to you. Note that things may be a little different from HELOCs but basically, you will be asked to submit nearly the same requirements.

Find a Good Lender

The best home equity loan lender for you is the lender that can save you the most money in the long run. You will have to look into fee structures, the advantages and disadvantages of loan programs available, and how they take their time to make sure that you understand the options you have. At Mortgage Central Canada, we will assist you in shopping for the ‘best-fit lender’ for your needs. Contact us today!


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.


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.


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.


Were You Rejected for a Home Equity Loan Despite a Good Credit Score?

Most people believe that a good credit score means instant approval when it comes to getting a home equity loan. This is a misconception. Each day, people with good credit score face rejection for a home equity loan. While it is true that a good credit score is key to getting a mortgage approval, this doesn’t necessarily apply to getting a home equity loan. This is because credit score is just one of the many indicators that lenders look into when determining whether an individual may be able to pay back a loan. Below are possible reasons why someone with a good credit score can get rejected for a home equity loan.

Look into Your Income to Debt Ratio

If you have a lot of debt and have a modest income, lenders may doubt your ability to afford paying for more loans. Lenders usually have minimum and maximum requirements when it comes to the ratio of debt and income with most lenders having a limit of between 43% and 49% debt to income ratio.

Having Low Income or Unreliable Income

If you have a highly variable and fluctuating income due to self-employment or work status, some lenders may be more careful about lending to you. Lenders consider each loan they approve as an investment. If there is a high probability that the loan won’t be paid back, it means that they might lose their investment. A solid proof of reliable income is what lenders want to see these days.

History of Foreclosure or Bankruptcy

Are you aware that your credit score will bear the marks of bankruptcy for up to 6 years since a bankruptcy was completed and that your records will be marred for 14 years if you happen to file for bankruptcy twice? A foreclosure or bankruptcy that happened a long time ago can have a huge impact on a home equity loan application at present time even when things are going well.

How to Get Approved for a Home Equity Loan

Do not be discouraged with the information shared above. It is still possible to get approved for a home equity loan even with declined previous applications. As soon as your finances improve or your credit score gets better, you can show that you are capable of paying bills in a timely manner. A credit score of around 680 will make most lenders more apt to lend to you but it won’t hurt to try because repeated checking and denial of application has no bearing on your actual credit score. You may reapply and recheck every few months until you get approved.

Are you worried about getting denied for a new application of a home equity loan due to a previous denial? Talk to us at Mortgage Central Canada! Our mortgage experts will assess your unique situation and assist you in getting a home equity loan approved. Contact us today to get approved as soon as possible!


Should You Apply for a Home Equity Loan or Is It Better to Refinance Your Mortgage?

Canadian homeowners have plenty of ways to access home equity although it can be tricky to choose which option is the best for their specific situation. It is not a secret that some individuals may face more difficulties or experience more limitations such as in the case of freelancers and other self-employed individuals. In general, people with non-regular income sources will have more difficulty securing mortgages and other loans.

Challenging Choices for Borrowers

The Canadian Government introduced the mortgage ‘stress test’ just a year ago and Canadians are having a more challenging time borrowing money with good interest rates since it was implemented. The mortgage stress test made things more favourable for lenders by increasing profits and decreasing risks but since borrowers have been having a harder time, they’ve been looking at more financial options to help them manage existing debt. This is a huge factor as to why the different types of home equity loans are becoming more popular although some people have voiced that that the many ways to access home equity is still a bit confusing for them and they aren’t sure which to apply for. The different home equity loans do have their pros and cons and what may work for one family may create more problems for another. This is why it is important to fully assess your specific situation with Canadian mortgage professionals before deciding which option to apply for to ensure that your financial goals will be met and so that you can avoid possible pitfalls.

Why Consult a Mortgage Professional for Your Questions?

A mortgage professional is a person who is abreast with the best and latest practices when it comes to mortgages and using your home equity. They can explain things to you in a manner that you will understand better. They will work with you to guide in making ethical financial decisions as a homeowner so that you can achieve your long-term financial goals faster and with more efficiency. Be prepared to answer a lot of questions because your answers to their questions is their way of assessing your financial needs for them to pinpoint the best options for you. Typical questions may be about your time frame for borrowing, how much you want to borrow, what are the terms for your existing loans or mortgage, and qualification criteria for loans and mortgages.

Refinance Your Mortgage or Get a Home Equity Loan?

Your truthful answer to the possible questions will determine if your situation will benefit more from a home equity loan or from a mortgage refinance. Note that each detail you provide counts in creating a solid approach that helps you get the cash you need now using a way that you will be capable of paying off later. This way, you can get out of debt faster.

Do you need a mortgage professional to help you decide between a home equity loan and a mortgage refinance? Talk to us at Mortgage Central Canada and we will answer the questions you have to empower you with the information you need. Discuss your borrowing options with us today!


Best Home Equity Loan Options for You

Living on a fixed income can be quite limiting. You face challenges that hamper opportunities to enjoy life, create a better life for yourself, afford unexpected huge expenses such as medical emergencies and so on. The good news is, you’re sitting on a lot of money if you own your home or have built quite a sizable home equity. This is money that you can borrow to pay for expenses that can’t be covered by your savings or fixed income. Find out more about how you can make your home equity work for you below!

What is a Home Equity Loan?

Your home equity is the value that you own in your home. It is the difference between your home’s current market value and what you still owe. If your home is currently worth $700,000 and you still owe $35,000, then you have a whopping $665,000 home equity!

Although you may not be able to sell your home equity, you can certainly build on it over time. Because it is the value that you own, you can use it as collateral to take out a home equity loan such as a second mortgage or a home equity line of credit.

A home equity loan is a type of loan that uses the equity you’ve built up in your home as collateral. Because it is a secured loan, borrowers often enjoy lower interest rates and larger loan limits as compared to unsecured loans. Depending on the lender and the home equity loan option you choose, you may also enjoy flexible payment schemes.

What is a Second Mortgage?

A second mortgage is a home equity loan that you take on top of a primary mortgage. It comes with a set schedule of payment as well as penalties for inability to pay on time. Note that a second mortgage does not erase or nullify a primary mortgage but is another mortgage that you have to pay off. It can be better than other types of loans because the requirements are often lenient towards people with bad credit or those with low income. The money you borrow will be released as a lump sum which makes this type of home equity loan perfect for a one-time big expense such as funding a home renovation.

What is a HELOC?

A home equity line of credit gives you a line of credit with a set limit from which you can borrow as much or as little as you need. It also allows you to reborrow the money if you pay it back. Unlike a second mortgage, a HELOC often requires a reliable income and relatively good credit. A HELOC is best for recurrent significant expenses such as paying for college tuition or hospital treatments.

The best type of home equity loan for you largely depends on your financial needs and your means to pay. If you’re undecided whether to apply for a second mortgage or apply for a HELOC, contact us and we’ll be glad to discuss how to best use your home equity.

How to Leverage Your Home Equity to Cope with COVID-19

With how the whole world is trying to cope with the effects of COVID-19 these days, it is still too early to tell how everyone will get through the long-term financial ramifications linked with it. Unemployment is still rising and plenty of people are having a challenging time paying bills and staying afloat in Canada. In our neighbour country below, people are facing unemployment rates of as high as 30% and things are still escalating. How can people recover from COVID-19’s effect on their finances?

The good news is that for homeowners, the money paid towards their mortgage goes to their home equity. The more payments that has been done, the bigger the home equity is going to be. This translates to more than $6 trillion available equity for the 45 million Americans who are homeowners and the Canadian figures are likely to reflect this as well. If you’re a homeowner, now is truly the best time to tap your home equity and make it work for you.

Leverage Your Home Equity

With job loss and businesses closing causing loss of revenue, now is one of the best times to leverage the value that you’ve built up in your home in the form of a HELOC, a second mortgage, or a home equity loan.

You may want to get a HELOC if you will be using the funds from your home equity for small but frequent purchases and expenses, such as bills, medications, and necessities. A home equity loan or a second mortgage can be better choices if you want a one-time access to a huge amount of cash.

HELOC or a Second Mortgage?

A HELOC would be great if you’re after flexibility and want the option of having access to cash but is not sure how much you will need or how often you will need it. It allows you the freedom to take as little or as much of your funds as needed and only charges interest for the withdrawn amount. This will allow you to save a lot of money and ease some of your worries should the lockdowns extend for a few weeks or months longer.

A second mortgage would be great if you coincidentally also have large expenses ahead, such as needing an expensive surgery that is not covered by the usual channels or need to pay for home repairs that can’t be put-off. The interest will be more substantial as compared to a HELOC but you get to enjoy access to almost all of your home equity without having to sell your home.

Unlock Your Home Equity

Know that no matter what option you choose to unlock your home equity, you’ll have to consider multiple pros and cons and it will be best to consult mortgage professionals for you to make a better-informed decision. There are many ways that you can make use of your home equity during COVID-19 and you must weigh your options with an eye towards the future. Contact us at Mortgage Central Canada if you have any questions about using your home equity during a pandemic.