First, Get to Know Your Options.

One of the advantages of having a house is the equity you build. You create equity as you pay your regular mortgage over time. Home equity is the difference between the worth of your home or its market value and the amount of your mortgage. Many homeowners can use this equity to acquire a lower rate loan or credit line that can be used not only with the renovations but also for their child’s education, buying a new car, or acquiring a second home. The amount that you can cadge for would depend on the accumulated equity you have. The more mortgages you pay, the more equity you gain for future use.

As stated above, you gain equity through paying your mortgage over time. If you decide to use this, you need to have your house appraised to determine its market value. Home equity is a type of loan where you use your house as the collateral and get a specific loan amount based on its value. If you applied for an equity loan, you could borrow 80% of your property’s appraised value less the balance you still have on your mortgage. For instance:

Market value of your house = $400,000

80% of it ($400,000 x 0.8) = $320,000

Remaining balance on your mortgage = $200,000

80% value of your house ($320,000) – Remaining balance on mortgage ($200,000) = $120,000

Note that the above equation is for sample purposes only as you can only know the exact value of your house after appraising it. Remember, if you got approved for a home equity loan, you now have to pay for two mortgages at the same time.
You may also opt to refinance a mortgage. It means you need to break your current mortgage to start a new one. It could be with the same or new lender. You can acquire a much lower interest rate if you consider refinancing your mortgage. Keep in mind that it is also very risky as it may incur a huge prepayment penalty, so make sure you do some research beforehand.

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Home Equity Line of Credit.

One of the most popular types of equity is HELOC or Home Equity Line of Credit. HELOC is a secured type of loan in which the lender uses your house to guarantee that you will be paying what you have borrowed. It is a revolving credit where the lender or the financial institution does not release the funds in a lump sum. Basically, you will borrow a certain amount, pay it back, then borrow again, and it is only up to a certain limit. However, note that HELOC has the strictest requirements as you need to have good credit and approvable income.

Decide on how you will spend your Home Equity Line of Credit.

Before applying for a home equity line of credit, you have to think first about where you will spend it. Create a payment plan and have a realistic budget that you will follow religiously. Lenders tend to approve limits higher than what you need, which could be tempting on your part to splurge more on your budget, but that does not mean you have to borrow the entire amount. It would be much easier to borrow the amount you need to avoid unnecessary and compulsive spending.

Some people use their Home Equity Line Credit in investing in the stock market, anticipating a larger return. Before exploring this area, try to think first if you are ready and tolerate investing risks. The stock market could be crucial as there is no guarantee that the stocks will perform their expected way.

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Consolidating Debt.

You may think a home equity line of credit tends to have a higher interest rate like credit cards and can consolidate debts. Yes, low-interest rates can help you handle your debt easily. However, to manage your debt properly, you also need to look at your spending habits. If you score a low interest rate on your equity or mortgage, but you still spend thousands of dollars on unnecessary things, it would not solve your problem. Hence, it might just add to the piles of your liabilities.

You have to make a payment plan to manifest a habit of paying regularly. You can ask your lender for a fixed payment system similar to a mortgage loan to avoid any financial burden on your part.

Applying for Home Equity Loans.

These are the main points you should consider

Pros

  • A large amount or a lump sum that you can use for whatever reason you want

     

  • Home Equity usually has a lower interest rate than other loans and credit cards

     

  • You can borrow anytime as long as you have a sufficient equity fund

Cons

  • Most of the requirements are very strict, especially if you have a low income or bad credit record

  • If you applied for home equity and got approved, you will be paying now two mortgages which could tighten your budget

  • You could be tempted to buy or spend on things that you do not need.

The Bottom Line.

If you do not have any idea or are new to Canada mortgage, have a debt consolidation bad credit, or seeking advice on mortgage pre-approval, you have the right person. We’ve been in this industry for a while now, and we know every bit and piece of a mortgage application. We have the best mortgage broker in Toronto and Ontario, Canada, who can help you in all areas of your home equity. Usually, the interest rates for equity are way lower than any loan, which we can help you with, especially with the approval process. You have the freedom to explore and choose with a wide range of options that we can lay down depending on your needs and specifications.

We do business with the following cities in Canada:

Toronto, North York, Scarborough, Pickering, Oshawa, Ajax, Whitby, Etobicoke, Thornhill, Richmond Hill, Markham, Stouffville, Uxbridge, Vaughan, Concord, Woodbridge, Mississauga, Oakville, King City, Caledon, Nobleton, Milton, Aurora, Newmarket, East Gwillimbury, Keswick, Bradford, New Tecumseth, Georgina, Innisville, Guelph, Barrie, Ottawa, Orangeville, Collingwood, Kitchener, Hamilton, Cambridge, Waterloo, St. Catharines, Niagara Falls, London, Peterborough, and Ontario.

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