How to borrow against home equity is a common question from homeowners these days. In these trying times, homeowners are trying to find more ways to leverage their homes to cover their other financial responsibilities. One good way to accomplish that is to borrow against your home equity.
Although many Canadians have substantial savings, unforeseen expenses can come up and pose problems with a family’s cash flow. Tapping home equity is a good financial solution for those who have an immediate need to cover a large expense; provided that the homeowners familiarize themselves with the process to avoid potential pitfalls.
But, What is Home Equity?
As a homeowner, your home equity is the value of your home that you truly own. This represents the money that you’ve paid towards your mortgage. You can estimate it by subtracting what you still owe from the current market value of your home. The higher the market value of your home, the higher your home equity will be provided you follow your mortgage payment schedule.
Use Your Home Equity
Once your home equity has been determined with the help of a professional appraisal, you can apply for a home equity loan with the lender of your choice. Know that different lenders can have vastly varying requirements and that you’ll have to qualify with them to get approved for a home equity loan. This may also vary with the type of home equity loan that you are applying for. There are 3 common ways for you to access your home equity. You can try refinancing your mortgage, applying for a HELOC, or opting for a second mortgage.
A second mortgage will gain you access to up to 80% of your home equity. This is a type of home loan that will use your home equity as collateral; therefore, note that failure to pay may result in losing one’s home.
A home equity line of credit or a HELOC will allow you access to funds backed by your equity. It functions like a credit card with a high revolving limit. A HELOC is a great choice if you know that you’ll have plenty of small but recurring expenses that cannot be covered by your savings or income. Lenders are usually more lenient for those applying for a HELOC and oftentimes, you’ll only need minimum 20-30% home equity to qualify for one along with a good credit score.
A mortgage refinance can be a good option if you are willing to break your first mortgage and pay the corresponding prepayment fees. You may be able to recoup the fees with the savings that you can get from a mortgage refinance. Refinancing your mortgage typically means availing of a much favourable interest rate and better terms overall.
Using Your Home Equity Loan
Most people use their home equity loan to invest, fund big home renovation projects, pay for higher education, or to start a new business. With the right lender who won’t take advantage of you, you’ll be able to use your home equity to attain a better financial standing that you can enjoy for years to come. If you’re looking for an honest lender to borrow against your home equity, contact us at Homebase Mortgages and our mortgage professionals with assist you with what you need.