If you’ve heard of home equity lines of credit, home equity loans and second mortgage, things can get confusing. Part of our role as Canada mortgage brokers is to help you figure out which is right for you. Here we’re going to explain what each does, how they work and how to make sure which option is the best for your needs. Before we get started, you’ll need to know how much equity you have available, you’ll find this on your monthly statement; subtract how much you owe from the last appraised value of your home, and you have your equity!
What is Equity?
Every monthly payment you make to the lender, you get back a little equity. It’s important to always pay more than the minimum payment to make sure that you’re getting back as much equity as possible. Once you pay off your first mortgage (and any other mortgages you may have taken out), you’ll have 100% equity! You’ll want to save up the equity in your home for a rainy day.
What is a Second Mortgage?
A second mortgage, also known as a home equity loan, is another mortgage you take out on your home based off the equity you have. So if you have a home worth $500,000 that you’ve paid off in full, you can borrow up to 80%, or $400,000 of. With a second mortgage you’ll be able to get a big lump sum to pay off your debts or to remodel your home, but it’s important to invest your money wisely. Renovations like bathrooms and kitchens pay off, so do decks, but flooring usually doesn’t pay much (but if your home is a carpeted mess it can certainly help sell it!).
What is a Home Equity Line of Credit?
HELOCs, or home equity lines of credit, are more like a credit card based on the equity of your home. Instead of having to worry about how good or bad your personal credit is, you’ll be able to borrow against your real equity that you have in your home. This can be both good and bad, because you can take a little here, a little there, over a period of time. many people open one as a sort of rainy day fund, and you’ll want to talk to one of our Toronto mortgage brokers before you do this.
Which One is Right for You?
Figuring out which one is the right one for you is never easy, but picking up the phone and giving us a call is! We’ll help you explore all of your options, understand how equity, credit and history play a roll in getting the mortgage that’s right for you. If you want a home equity loan or a second mortgage, we can help! We’ll help you find the lender that will give you the best deal – equity is hard fought, so you’ll want to make sure whoever gets their hands on it is going to give you a great deal.