Your Home Equity to Raise Money
Because life never fails to throw financial
curveballs, you may find yourself looking at second mortgages for your Oshawa
home. Using the equity you’ve built up in your home, second mortgage can indeed
be a useful and safe way to raise a lump sum of money. However, before you
settle on that solution to your financial situation, there are two other
options you may wish to consider: refinancing your
first mortgage, or a home equity line of credit (HELOC).
is often available from mortgage lenders. What this means, simply, is that you
renegotiate the terms of your existing mortgage. Your aim is to access the
equity you have built up in your home in the past by paying down the mortgage
and/or the rise in your home’s assessed value. Refinancing
that first mortgage means you change the terms of the original agreement. You
can consolidate other debts using your home equity, negotiate a longer term
period, and convert to a fixed rate mortgage. The big advantage is that you have
access to a lump sum of cash.
There are downsides. In addition to possible penalties
for changing your mortgage, you may have
to contend with a less favourable interest rate than your mortgage is currently
pegged at (though the current market would suggest otherwise). Some other terms
may change too including what happens to your assets in the case of a mortgage
– Five Letters That May Change Things
A Home Equity Line of Credit or HELOC is much like a regular line of credit. You can borrow money up to a
set point, pay it back, and borrow it again. But, because the HELOC is grounded
in the equity you have in your home, the rate of interest on a HELOC is less
than that offered by a credit card or personal loan.
The flexibility of a HELOC is well-suited to periodic,
large expenses, like school tuition fees or ongoing home renovations. The
amount available for a HELOC is calculated at 80% of your home’s appraised
value or, when combined with a regular mortgage, to a maximum of 80% of that
To calculate, take the appraised value of your home
and your maximum HELOC and Mortgage combined can be 80% of that value.
Then, subtract the amount you still owe on your
mortgage – and you have the maximum credit limit for your HELOC.
Mortgages Offer Lump Sum
The third option is the second mortgage
is exactly what it suggests – a second loan that you’ve taken out using your
home equity as the security. The rate will be higher than your first mortgage,
because the lender is second in priority to the holder of the first mortgage. Second mortgages
are especially good in situations where you need a lump sum of money at one
time or, at the time of purchase, want to reduce the size of a first mortgage
in order to avoid mortgage insurance fees.
A qualified mortgage broker
can help you learn which of the three
lending options is best for you: refinancing, a HELOC or a second mortgage for
your Oshawa home.