Home’s Equity Loans

Your home is an investment, and a source of money ready to help with improvements, education repairs, and emergencies. Using your home’s equity can be a quick and easy way to improve a financial situation and pay for surprise costs.

Home equity is the market value of a your home, excluding any liens that may still be attached to it. Home equity is the personal wealth you hold in your house, the total accumulated value. Home equity is an asset you can use to borrow against in some loans.  Home equity, simply put, is like a second mortgage secured by your house, where you can borrow money using your home as collateral. It is the portion of your home you have already paid off.

To figure out the amount of home equity you have check  what you still owe on your mortgage. Then find out what your home’s total value is. The resulting difference is the amount of home equity of your home. 

Home equity is built up from you paying down your home’s loan, as well as any property appreciation that accumulates over time. You can always sell your home to get cash from your equity t, but there are alternatives to get the funds without selling. Using home equity is usually saved for big, or unexpected expenses, and are more cost-effective than using a credit card or a personal loan with a high interest rate.

Five Reasons to Use your Home Equity

Here are five simple reasons you may need to tap into your home equity loan:

  • Tuition: You can use your home equity to pay for college or university costs if you find out it has better interest rates than the student loans. There is a possibility the payment amount could be reduced and the term extended.
  • Investments: If you are looking for a viable way to finance investments, and know the investment is a good one, home equity can provide needed funds. If you wish to invest in real estate, for example a vacation home, home equity could be beneficial for the down payment. It is not recommended to use home equity for things like the stock market. 
  • Debt consolidation: Using Home Equity can help you get out of debt faster. If you have several debts with high-interest rates, causing you difficulty in making payments, debt consolidation can save you money. It can put everything into one payment with lower interest rates and longer terms.
  • Emergency funds: Even though it’s recommended to have three to six months of funds for living expenses set aside, that just isn’t possible for many people. Home equity can be used for sudden emergencies. There may be a wait-time, so it may not be the best for time-sensitive obligations. Using home equity for emergencies would work well for temporary emergencies, like when you’ve lost your job or have medical costs. 
  • Renovations or Improvements: this is probably the most common reason people use home equity loans. Not only does renovations or improvements make the house better to live in, it raises the house’s value and creates more interest from buyers when or if you sell it. 

Types of Home Equity Loans

There are two different types of home equity loans, but both are based on a borrower’s home equity. 

Home Equity Loan:  This is a fixed-term loan. The lender gives it to a borrower based on borrower’s home equity. It is for a set amount, and is given in a one-time lump sum. The Home Equity Loan has a fixed payment rate and fixed interest rate for the loan’s term. If you know the amount of funds you need to borrow, and want to budget better by having fixed rates and monthly payments, this loan would work for you. The Home Equity Loan is great for helping with large expenses, has predictable rates and payment plan, and is good for consolidating debts and lowering interest rates.

Home Equity Line Of Credit:  A Home Equity Line of Credit, is a credit line allowing a borrower to take out needed funds, up to a certain amount. There is a preset limit to this loan, but the borrower can make payments and take out the money again. This is good loan if you have excellent credit, and are aiming to get low interest rates, as well as reduce payments.  A Home Equity Line of Credit, or HELOC, is a good option if you are doing improvements or renovations and don’t know how much you will need financially. You can tap into this credit line as many times as you need until the term ends. The minimum payment for the borrower can also change as the amount being used changes. A HELOC is very flexible, has lower interest rates compared to other loans, and has money available whenever you need it. You don’t have to apply for a new loan each time you need money, and you only pay interest on the amount you withdraw. 

Home equity gives home owners great saving and financing opportunities as it often is a better choice than using personal loans and credit cards.  It gives every homeowner the opportunity to grow their own wealth

Second Mortgage

Many people struggle to get a control on debt, and it is a milestone for many to be debt-free eventually. With debt rising faster in many Canadian households, many of them struggle to make their monthly payments properly, it can at times be challenging to manage debt. The best way to make sure that most end up making their interest payments on time is to consolidate all their debt into one single loan with easy-to-make monthly payments. Debt consolidation allows one to save thousands of dollars in interest, additionally have lower monthly payments, and also allow one to pay off the principal faster. When considering consolidating debt, it pays off to look for the lowest rates that you can qualify for, including making manageable monthly payments. Do not let high-interest debt stand in the way of achieving your financial goals. Lots of Canadians have looked to take out a second mortgage to consolidate their debt and reduce some of the financial stress. From the below ways one can consolidate their debt through a second mortgage:

Consolidate debt using a second mortgage

Property owners in Canada can consolidate all their high-interest debts by using a second mortgage or their home equity (HELOC- Home Equity Line of Credit). However, one of the drawbacks of refinancing your mortgage to consolidate or taking out a second mortgage for debt consolidation is that the borrower must meet the lender’s debt-to-income service ratio criteria. Since the introduction of the stress test, it has become easier for borrowers to qualify for a mortgage. If you want to reduce your debt quickly, you will need to pay interest every month plus principal. If your income or credit score is low, that is not a problem; you may not qualify for refinancing, but you are likely to get qualified for a second mortgage. Interest rates for a second mortgage can be up to 10%, and you will also be required to pay a lender’s fee ranging between 1 – 2%. As the amortization periods are shorter, you will need to pay a higher monthly amount. When considering taking out a second mortgage to consolidate all your high-interest debt, you must way of the fact that failure to make the scheduled monthly payments on time or default in payments can lead to a risk of foreclosure.

Debt consolidation is one of the common strategies which involves combining multiple high-interest debts into one single low-interest loan payment. Individuals who have built-up more than enough equity in their property can take out a second mortgage to pay off said high-interest debt. The debt could be anywhere from paying your credit card bills to car loans and home loans, etc. Keep in mind, that paying off your high-interest debt does not pay off the first debt. A few people consolidate their debt only to sadly find themselves in a situation of being in debt within a short period.

When one takes out a second mortgage to pay off debts that are of high interest, they are putting their property at risk because they are moving unsecured debt to their house. The lender could eventually foreclose on the property if the borrower defaults or fails to make the monthly payments on time. Another major risk of taking out a second mortgage is that it could reduce the value of your property to the extent of it being worth less than the mortgage, resulting in the borrower likely to default. It’s better not to tie most of your high-interest debt to your house, and try to avoid it as much as possible. Speak to our experts at Matrix Mortgage to find out more information on how to resolve your debt with a second mortgage. We will also identify the root cause of how you got yourself riddled with debt in the first place.

When compared to other options to consolidate your debt, this option allows borrowers to access up to 80% of their property’s value. Applying for a second mortgage through a private lender is the best option available. A second mortgage is a type of home loan that is issued by a lending institution that can be offered by a traditional bank or a credit union, or even a private lender. If you are having a difficult time qualifying for a second mortgage with a traditional lender because of your poor credit score and history, this is the best option available to you. Despite the interest rate being high, you will still benefit from this option as the rate is far lower when compared to a personal line of credit or credit card. This ultimately helps you save more money in the long run, thus helping you pay off your debts sooner.

A second mortgage is a loan that one secures against your house on top of your first mortgage. They are normally used to consolidate debt and, as mentioned above, combine high-interest loans into a single monthly payment at a far lower interest rate. A second mortgage comes in different forms, such as a Home Equity Line of Credit (HELOC), which usually has a rate between 8 to 14%. A pro tip would be to shop around in search of the best rates, or get in touch with the team at Matrix Mortgage to help secure the best rate in the market that suits your current financial situation.

 

Reverse Mortgage

What is a reverse mortgage?

In Canada, a reverse mortgage is a type of loan that is secured against your principal residence. This financing solution gives you access to tax-free cash with no mandatory ongoing payments.

How does a reverse mortgage work?

You’ll continue to own and live in your home, and you’ll never be forced to move or sell your property, as long as:

  • you live there for at least six months per year
  • you keep your residence in good order
  • you remain current with your property tax payments
  • you adhere to the loan terms

You can use a reverse mortgage for things like:

  • paying off debt
  • covering everyday expenses
  • making renovations
  • supporting your family
  • paying for in-home care

Interest is calculated on the outstanding balance of both principal and interest throughout the life of the loan. The outstanding balance will increase accordingly over time.

Your reverse mortgage must be repaid when the last remaining homeowner leaves the home, which generally happens through sale of property where the proceeds are used to pay back the loan.

You may be eligible for a reverse mortgage if:

  • you are 55 years old or over
  • you live in the major urban centres of Ontario, Quebec, British Columbia, or Alberta
  • your home is your principal residence (you live there for at least six months of a calendar year)
  • all title holders of the residence apply as joint borrowers (in ON, AB, BC)
  • the residence is owner-occupied and not a secondary home or cottage
  • your home is detached, semi-detached, condo, or townhome

 

Contact our experts for more details.