- dan@yourrateguy.ca
- 895 Don Mills Rd, North York, ON, M3C 1W3
- Adamas Financial Corp. #13266
(647) 241-6652
A home equity loan is a way for you to leverage your investment in your home. Property values typically increase over time. So, as you pay down your mortgage and the value of your home goes up, you build equity. This number is calculated as the value of your home (based on current market assessments) minus the amount you owe or any liens. Imagine this number is the section of your home that you actually “own”.
For example:
When it comes to borrowing money, you can use this equity to secure a low interest rate or use it as collateral.
Although situations will vary slightly, most lenders will allow you to borrow 80% of the equity you have built up. Using the previous example, your home equity is $200,000 so you would be able to borrow $160,000.
When deciding to borrow against your home, you need to factor in a few extra steps compared to other types of loans. This means the process will take a bit longer as you’ll need a property assessment to discover the current fair market value.
Many people utilize home equity loans for large purchases like
This type of loan can also be used to consolidate high-interest debt or to pay off outstanding property taxes.
There are three ways you can leverage a home equity loan.
Borrowing a lump sum and paying it back over a scheduled time frame.
Allows for flexibility as you can use as much or little of your credit as you need at a time.
Breaking your current mortgage and negotiating for a higher amount. The new mortgage pays off your original mortgage and gives you a sum of cash.
To maximize your home equity loan and get the lowest rates possible, you should ensure your credit score is the best it can be. Check your credit report for any errors that could pull down your score.
If you have overdue bills or your credit cards are maxed out, settle your debts before applying for a home equity loan. You will be rewarded with better rates if you can bump your credit rating from fair to good or good to excellent. This could result in thousands of dollars in savings.
There are a number of reasons why using a mortgage broker is beneficial to you when securing a home equity loan.
For starters, brokers have experience with the process and are tuned into details that you may not be. They can guide you through the process and help you understand the details of the arrangement and complete the appropriate paperwork. In addition, their experience allows them to shop multiple lenders in the time it would take you to research one option. This will save you time and aggravation.
Using a broker gives you more choice and will result in the best rate. Brokers have established relationships with multiple lenders - who are often competing for your loan. They can leverage those relationships to negotiate the best rates which can save you thousands of dollars.
If your credit score is less than ideal, you can still benefit from a home equity loan but you’ll have a few more restrictions than someone with an excellent credit score. Your eligibility depends on a number of factors, so it’s worth discussing with a broker to determine your options. The amount you qualify could be capped but with a lower interest rate than other loans, it could still be beneficial to consolidate and pay off your debt through a home equity loan. If you’re considering this option, book a call to speak with me.
As with all forms of borrowing, you must consider if this type of loan is right for you. When borrowing against your home, you want to ensure you will be able to responsibly repay the loan. If you encounter problems with repaying the loan or your interest, you could lose your home.
If you are financially responsible with a steady, reliable income, this type of loan can save you a lot of money through low interest rates and favourable terms and conditions. However, this decision requires you to do some research and commit to a repayment schedule that works for you.
I can help you make the financial decisions that work best for you and your family or situation. Book a call today to discuss your options.
Dan Mizrahi – Your Rate Guy can help you secure your mortgage and provide you with numerous options to get you the money you need and deserve.
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