Interest rates for mortgages are projected to remain low until 2023 and so homeowners are understandably trying to take advantage now by tapping into their home equity. The question is, what is a better way to use home equity? Should you go for refinancing your mortgage or opt for a home equity loan?
Watch Out for Prepayment Penalty
One important thing to consider is having to pay a prepayment penalty. If you break your mortgage before the term is up for any reason, you can be charged a prepayment penalty. This remains true even if you are refinancing your mortgage with the same lender. This fee can range from a few thousand to tens of thousands of dollars because factors such as your interest rate, years left to pay, and more are considered. You need to consider this fee to make sure that you would not be in worse financial situation after refinancing.
Because of the above, more Canadians are leaning towards taking a home equity loan rather than refinancing their mortgage. A home equity loan is a loan taken against one’s home equity and is given in a lump sum to give people more freedom and fast access to a large sum of cash.
Why Get A Home Equity Loan?
There are many benefits to getting a home equity loan and one is avoiding prepayment penalties associated with a mortgage refinance. With a home equity loan, you can keep your first mortgage and just get another mortgage on top of it so you will not be breaking your first mortgage. This way, the slightly higher interest rates are justified and you can still end up saving more versus a mortgage refinance.
Another benefit of a home equity loan is flexibility. Home equity loans can be customized to meet your needs. Your lender can match your term on your existing mortgage and more. You can be offered interest-only payments or a custom payment plan that could match your finances.
A home equity loan is also markedly quicker than a mortgage refinance and can be processed and approved within days. More so, there is no mortgage stress test required for a home equity loan. There is no need to requalify with current mortgage stress test guidelines.
As for other benefits associated with a home equity loan, you can use it for a variety of uses. You can use it to pay for home renovations, pay for debts for debt consolidation, use it to fund a business, buy an investment property or a second home, pay for tuition, spend on a wedding, and many more.
How to Get A Home Equity Loan?
Contact us at Mortgage Central Canada for a consultation if you are not sure about getting a home equity loan. We can help you assess which loan type may be best for you by discussing the pros and cons of each type as they relate to your situation. Borrow against your home equity with confidence today! Apply for a home equity loan with us.