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As a homeowner start to pay down their mortgage throughout the years, the home equity starts to build. The more you pay toward your mortgage, the more home equity you gain for future use. Your equity will also rise if your property increases in value with the fluctuating housing market.
Often, the homeowners choose to use their equity to finance something important. This expense can be anything from a large purchase for their house, paying off an existing car loan or putting their children through school. Whatever is the cost, they will use their equity to pay it down.
Do I Have Home Equity?
If you have been paying off your mortgage for several years, you may know what home equity is. As we explained above, you build equity as you pay down your mortgage. If you decide to use your home equity to take a second mortgage, you will need to have your house appraised to determine how much it is worth.
Is a Home Equity Loan a Good Option?
A home equity loan is a good option if you need money for:
- Home renovation
- A new car
- Home improvement or extensions
- For business
- Debt consolidation
- To cover your children’s school fee
Basically, if you need a large lump sum of cash for whatever purpose, you can get it by obtaining a loan on the equity of your home.
How Can I Get Access to My Home Equity?
Homeowners can use the traditional methods to access their home equity. These methods include:
- Home Equity Loans
- Second Mortgage
Let’s understand each by explaining them further.
1. Home Equity Loans
A home equity loan is a loan that is secured by your home. It works in the same way as any other secured loan. Based on the worth of your house, your lender will allow you to borrow a specified amount of money. Interest will be charged, and payments will be made in instalments.
What’s the best way for me to get home equity?
To qualify for a home equity loan, you must possess a home that has been evaluated by your lender, have paid off a substantial portion of your mortgage, and be financially stable enough to take on more debt.
What Am I Supposed To Do With One?
You can borrow up to 80% of the appraised value of your home with a home equity loan, minus the amount you still owe on your original mortgage. After that, you’ll have to pay off both mortgages at once.
The distinctions between a home equity loan and a home equity line of credit are significant. The first distinction is that a HELOC is a revolving credit line, as opposed to a loan, which is a lump sum of money. As a result, you can utilise that line of credit whenever you want and reclaim the full limit as you pay off the balance.
What’s the best way for me to get one?
Your bank or most traditional financial institutions, as well as private mortgage lenders, will be able to provide you with a line of credit. However, in order to qualify for a loan, banks normally require a high credit score. To qualify for a HELOC, potential borrowers must first have their property evaluated to ensure they have adequate equity in their house. These lines of credit are only available to borrowers who have a minimum of 20% equity in their house.
What Am I Supposed To Do With One?
You can get a HELOC for up to 65 per cent of the appraised value of your home. You can extend the borrowing limit to 80 per cent of the home’s appraised value if your lender combines your HELOC with the remainder of your mortgage. Also, you can borrow as much as you want once your line of credit is secured, as long as you make the minimum monthly payments.
3. Refinancing Your Mortgage
Refinancing your mortgage entails obtaining a new loan to replace your current one. In exchange, you will be given access to a portion of your accrued equity. You’ll need to meet with your lender to figure out how much of a loan you qualify for. However, you should be aware that you will most likely have hefty payments to make and that your equity will drop.
How Can I Refinance?
You’ll need to get your property evaluated once more. You’ll then have to break your original mortgage arrangement and renegotiate with your existing lender or a new one. Just keep in mind that if you refinance your mortgage to gain access to your equity, you may be subject to a prepayment penalty fee for breaching your mortgage contract. If your mortgage is up for renewal and your lender’s penalty costs aren’t too high, refinancing may be the most cost-effective option.
4. Second Mortgage
A second mortgage is a loan taken out against a property that has already been mortgaged once. In this situation, your home will serve as collateral, allowing you to obtain the second loan. When taking out a second mortgage, be cautious because you’ll be responsible for two different mortgage payments. Because your property serves as security, if you fall behind on your mortgage payments and your lender deems that you will not repay them, they have the authority to foreclose on your home and sell it to recoup some of their losses.
How To Use Your Home Equity in 2022?
In the end, you have complete control over how you access and use your home equity. Whatever course you take should be based on your financial circumstances, so wait until you’ve gotten all of the information you can and weighed all of your options equally before making a decision. If you’re having difficulties deciding which solution is ideal for you, Loans Canada can assist you in finding the correct home equity loan product and accredited specialist.
The Bottom Line
At Lionsgate, we specialize in helping people get the extra cash they need, obtain funding for private mortgages, as well as for other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, fill out the form below. Or, You can leave us a message and we will try to connect you with local lenders and sources that best meet your needs.
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