With GTA property values at
attractive heights, and interests rates holding steady at a very enticing
level; this is an ideal time to be considering a home equity loan in Brampton
or any of the nearby townships.
The decision to borrow against
your home is never an easy one; but sometimes it’s the most prudent financial
move a home owner can make. Most savvy home owners consider mortgage financing
for the consolidation of expensive debts, financial investment, recreational or
investment property, and even for the purchase of a new vehicle or home
Regardless of the purpose,
before you meet with a financial professional, here’s a brief overview of what
you should know:
Benefits of a
Similar to a first mortgage, when
you use a second mortgage to unlock equity in your property, the lending
institution will register your loan using the home as collateral. Home owners
benefit with this type of financing option when a longer term, lower payment is
the priority. A recreational or investment property would be a good example of
the effective use of a second mortgage since you’re purchasing an appreciable
asset with home equity.
Second mortgages are often
underwritten by smaller lending institutions and private lenders, so you should
shop around aggressively or use a mortgage professional to scour the market for
the best deals.
While interest rates for a second
mortgage are generally higher than a first mortgage, most
unsecured borrowing options carry a much higher interest rate and provide less
security against swings in variable lending rates.
You can borrow up to 85% of
the appraised value of your home, less the balance on your first mortgage.
Refinance Your First Mortgage
If you’re borrowing goal is longer
term with low payment amounts, and your mortgage is not locked in and subject
to penalties, you might also consider refinancing your first mortgage. You can borrow up
to 85% of the appraised value of your home for a first mortgage and while there may be fees associated with registering a new
mortgage, in many cases your savings will far outweigh the relatively low costs
Consider this option if your
borrowing needs are long term in nature, and current market interest rates are the
same or lower than your existing first mortgage.
Fixed-Rate Loan vs.
Home Equity Line of Credit
Much like a credit card, a home equity line of credit
(HELOC) allows the home owner to
advance or pay down their line of credit with flexibility and without penalty,
at any time. Interest rates are attractive and fluctuate with market
There are two types of home equity loans: a fixed-rate loan and
home equity line of credit. Both types of loans have a set term, but are
structured differently. Your minimum payment amounts fluctuate with your
outstanding balance and the current HELOC rate.
If you’re looking for stability in your payment amounts, then a fixed-rate
loan would be your best option. By locking in the rate and term (up to 5
years), your monthly budget remains the same and you have the peace of mind
knowing that economic fluctuations will not affect your loan.
For both options of your home equity loan, you can borrow up
to 85% of the appraised value of your Brampton home, less your first mortgage