Mortgages or HELOCS – Which is Better?
There are brokers who deal with second mortgages
and home equity lines of credit in Mississauga. Both are viable ways to raise
capital, using the equity you have built up in your home. Both options have
advantages and work better in certain situations.
A second mortgage is exactly that – another mortgage
you place on your home, secured with your home equity. The interest rate on a
second mortgage is almost always more than that of your first mortgage, but is
also generally less than the rate charged on credit cards or personal loans.
Because you are borrowing against the equity in your
home, a second mortgage is an ideal way of consolidating personal debts into a
manageable package. It can be used to pay off arrears in taxes or payments on
the first mortgage. Second mortgages also give homeowners access to a ready
pool of cash that can be applied to large, one-time expenses.
The downside of a second is obvious: you are paying
off your second mortgage at the same time as you are paying your first. It is
an added, ongoing expense that must be carefully calibrated with your family
Equity Lines of Credit (HELOC)
A home equity line of credit is more like a line of
credit. You can borrow money whenever you want, up to a certain credit limit.
You can pay off the HELOC and borrow again. As with a second mortgage, you are borrowing against
you have built up in your home.
The upper amount you can borrow with a HELOC is
limited to 80% of your home’s appraised value which, when combined with an
existing mortgage, can be 80% of your home’s appraised value. But the regular
mortgage has to be factored in first. Let’s say your home is worth $400,000,
then your potential maximum for a HELOC is $320,000. However, to calculate the actual
amount eligible for a HELOC, you first have to subtract the outstanding
mortgage. In this case, if your outstanding mortgage is $200,000, that is
deducted first, leaving a HELOC maximum of $120,000.
HELOCS are popular because of their flexibility. For
example, if you are engaged in an ongoing process of home renovations, you can
borrow amounts one after another. College tuition is another case where the
HELOC’s flexibility and ability to be revisited works well. As with second
mortgages, the interest rates on a HELOC are almost always lower than that of a
credit card or consumer loan.
the Right Financing
Choosing the right kind of financing for your personal
situation may seem confusing at the outset, but there are a number of resources
to assist you. The first is a comprehensive government website – Financial Consumer Agency of Canada.
FCAC has all sorts of advice on mortgages and HELOCs and lays out your options
The second move you should make is engage a reputable
broker to guide you through your mortgage needs. Look for an Ontario-based
company that provides a full range of mortgage and refinancing service
A good broker dealing with second mortgages in Mississauga can help you unlock
the equity that you have built in your home.