How to Use Your Home Equity to Consolidate Your Debt

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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

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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!

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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?

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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?

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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?

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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!