Tag Archives: home equity

Finance

Should You Take Out a Second Mortgage?

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With housing prices cooling off a bit but still generally soaring in cities across Canada, many homeowners are asking themselves how they can cash in on the market without actually having to sell their property. For many, a second mortgage will be the ideal way to do so.  

Second mortgages are one of the perfect mortgage solutions for homeowners who want to tap into their home equity to get lump-sum cash payments at low rates of interest. If you want to know if a second mortgage is right for you, here are three questions you should ask yourself. 

1. How Much Home Equity Do I Have? 

Before you start approaching mortgage brokers about a second mortgage, it’s a good idea to do some calculations around home equity, as the amount of money available to you through a second mortgage is determined by how much home equity you have.  

Fortunately, home equity is easy to calculate: simply subtract your existing mortgage from the current market value of your property. The difference is your home equity — the amount of your home value that you own outright.  

If you don’t know how much your home is worth, you can use a free calculator like this one to get a general estimate based on the going rate for properties in your neighbourhood. 

2. Should I Get a Home Equity Loan or Refinance? 

Generally speaking, there are two ways a homeowner can cash out a percentage of their equity: through refinancing or through a second mortgage. Both can be good ways to unlock capital, but which option you go for will depend in part on your financial situation. 

  • Refinancing: When you refinance your home, you replace an existing mortgage loan with a new mortgage loan. This new loan can be negotiated to include a cash payout based on your home equity, and while cashing out will likely extend the time it takes to pay off your mortgage, you will still only be dealing with a single mortgage loan.  
  • Second Mortgage: A second mortgage is an additional mortgage loan taken on against your home equity. Because it is an additional loan, it will usually come at a higher interest rate. 

In Canada, most mortgages are refinanced every five years, but they can also be refinanced more frequently. But if you already have a low interest rate on your existing mortgage and rates are increasing, a second mortgage may be the cheapest way to turn equity into cash. 

3. Will this Loan Save Me Money? 

A second mortgage can be a powerful financial tool, but it isn’t free money: you will still need to pay it back with interest, so you should be careful about how you use it.  

Taking out a second mortgage to consolidate debt, or to build an addition on your house, are smart investments because they put your money to work by reducing your interest payments or enhancing the value of your property. This puts you in a better financial position than you would have been if you didn’t borrow the money.  

Doing a cost/benefit analysis and working out how much money borrowing against home equity will save you is the key to making a strategic decision. 

Given how much real estate values have gone up over the past few years, figuring out how you can use your newfound wealth to improve your financial situation is essential for good money management. If you want to know more about whether a second mortgage is right for you, get in touch with a local mortgage broker to explore interest rates and options.  

Feautured image: Precondo CA Via Unsplash/ Silo Content Production

Finance

How to Use Your Home Equity to Deal with Unexpected Housing Costs

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If you don’t have any available savings, your home equity can provide an immediate source of funds. 

Even the most responsible homeowners can find themselves faced with an unexpected home emergency repair or maintenance issue without the cash on hand to deal with it. If this is you, you are not alone. There are solutions available that can help you tap into your home equity to fund those projects without having to take out an expensive loan with the bank. 

Consider a Home Equity Line of Credit (HELOC) 

A Home Equity Line of Credit enables homeowners to access up to 85% of the value of their home for what they need. If you have owned your home for a number of years, then you have built up equity that can be used as collateral.  

A Home Equity Line of Credit is designed specifically to help homeowners cover these unexpected costs without worrying about their level of savings or credit score. Taking out a HELOC is a fast and convenient borrowing option because you can access the funds you need, pay it off and borrow again if needed. 

To calculate your home equity, simply follow this equation: 

The value of your property – the balance remaining on your mortgage = your home equity 

In many cases, you will pay less to borrow against your home equity than if you were to get an unsecured loan or line of credit. When you choose to work with a mortgage broker instead of the bank, you can get access to more lending options and at a lower interest rate.  

Take Out a Second Mortgage 

Many homeowners are aware of HELOCs but haven’t considered that second mortgages are also an available option. Essentially, a second mortgage functions as an additional mortgage loan. Both mortgages will need to eventually be paid off but because they normally come with much lower interest rates than unsecured loans, they can be an appealing option to borrow much needed funds. 

With the value of Ontario homes increasing due to the booming real estate market, many homeowners are using this opportunity to access the value of their home.  

You can use your second mortgage for anything as long as you continue to make your repayments. So, if you have a home maintenance or renovation project in mind, then it’s a good idea to consider a second mortgage now instead of waiting until it becomes an emergency situation. 

Work with a Trusted Mortgage Broker 

A mortgage broker acts as the intermediary between the financial institution offering the loan and the individual seeking the loan to buy real estate. The mortgage broker works with both parties to ensure the loan gets approved. The main benefit of working with an experienced mortgage broker is that he or she can work with a wide variety of lenders to find the best terms and rates. 

For those who are self-employed or don’t have stellar credit, working with a mortgage broker is advantageous because they are experienced at working with complex situations. This is especially critical for anyone who requires fast funding and has been turned down for a loan by the bank. 

A mortgage broker like Burke Financial specializes in handing challenging applications and works with people who have varying needs and circumstances.  

Regardless of whatever life problem you are facing, a mortgage broker can help you explore your options and find a solution to your problem so you can get back to other life tasks. For the Silo by our friends at Burke Financial.