Home Equity in Canada
Home Equity
Home equity, in simple terms, is real value of the property based on a current market value assessment less any liens or amounts owing against the property. The amount of equity in a house may go up and down, depending on what’s happening in the real estate market, but generally speaking home equity tends to go up since property values usually increase and you are paying down the principal on your mortgage.
You could think of home equity as the portion of your home that you actually own.
For example: if your home is worth $400,000 and you have $250,000 left owing on your mortgage then the equity you have built up is $150,000.
You may be wondering what that has to do with borrowing? Well, a homeowner can use the equity they have built up in their home to secure lower interest rates or even to use as collateral against borrowing.
How much can I borrow from my home equity?
Although there are some exceptions, most lenders will allow you to borrow up to 80% of your home equity. So, using the example above, you would be able to borrow $120,000.
Did you know . . .
If you put up a larger down payment on your home (20% or more), you will automatically have more equity in your home right away?
Using the equity in your home is a little different than other kinds of borrowing. The process can take a little longer than other types of borrowing because your home will need to be appraised for fair market value in order to determine how much you can borrow.
Methods of borrowing from your home equity
- A second mortgage involves borrowing a predetermined lump sump and paying it back over a fixed period of time.
- A home equity line of credit is a little more flexible, and you can use as much or as little as you need at one time. A line of credit is more similar to a credit card, but when it’s using the home equity you often get a much lower interest rate than traditional credit cards offer.
- A third way to borrow from your home equity is to refinance your mortgage. This involves breaking your current mortgage and getting a new mortgage for a higher amount. The new mortgage pays off your current mortgage plus gives you an additional amount of cash.
Ways you can use your home equity
- Home renovation projects
- College or university tuition for your children
- Consolidate high interest debts
- Pay off back taxes or outstanding property taxes
- Purchase a new vehicle
- Start your small business venture
Due to the fact that this kind of loan uses the equity you’ve already acquired it is usually easier (although not quicker) to obtain. There is collateral, or security, that if you default on your payments the lender has more guarantee that they will get their money.
Is a home equity loan right for you?
Like with all kinds of borrowing, using your home equity isn’t right for everyone. For those homeowners who are financially responsible with a steady, reliable income using the equity in their home to finance a loan may be the right option. Using the equity, in that case, can provide more flexibility than traditional lending options along with better terms and options.
Did you know . . .
When you get a home equity loan, the money is given to you in cash?
Are you considering using the equity in your home, but still aren’t totally sure if it’s the right option for you? When choosing a borrowing method that requires you to use your family’s home as collateral, there are many details to consider. This option may not be the best for you, and your situation.
By booking a consultation with one of our agents, we will walk through your unique borrowing needs to determine if using the equity in your home is your best option. During the consultation, we will discuss what you want to get out of your loan or line of credit, and any financial obstacles you may be facing.
Give yourself the dream kitchen you’ve always wanted, or send your children off to university without any financial worry for them! Using the equity in your home is money that you’ve worked for, and it allows you to borrow at a much lower interest rate so it will cost you much less in the long run overall.
We are here to work with you, give you the best advice and help you make informed financial decisions that are the best for your future. Book your virtual, phone or in-person appointment today – no obligation, just information! We can help with all your borrowing needs.
Home Equity FAQ's
The amount for each person, or couple, will depend on the original amount of the mortgage borrowed. The amount that can be lent out as a home equity loan is calculated as a percentage of total amount owed, not a dollar value. To see if you qualify, contact us today.
The terms and conditions of your line of credit may change depending on the lender you choose or the kind of home equity product you get. We will work with you to find a borrowing solution that works within your budget and your schedule so it’s easy to handle.
This kind of borrowing typically looks at the equity in your home more so than your credit history although it will still be a factor. It will be a combination of information that will determine your eligibility for a home equity loan. Book an appointment today to see what your options are!
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