As a homeowner, you may have an amount of home equity available to use like cash. Your equity is the difference between the assessed value of your home and the amount you have owing on your mortgage. If your home has increased in value since you've bought it, you will have a reasonable amount of equity that is available for you to use. This is good news!
However, utilizing your equity is a decision that should be taken into great consideration. There are a number of factors that should be considered when deciding whether or not it is wise for you to utilize this money, and if so, how to use it. We are here to help you understand your options, and to help you access your equity.
Using your home equity for investment can help you further in your life, and can increase the value of your assets if used productively. In a city like Vancouver, it can best be used to help you buy more property or renovate your home if you do not have the proper funding, or are having trouble getting loans from the bank.
SOME RESOURCEFUL WAYS OF USING YOUR EQUITY:
By putting your home equity into another investment, you are making a secure investment, especially in a market like Vancouver.
Renovating your current home will help increase its value, which continues to bring up your equity.
PAYING OFF OTHER DEBTS
If you have debts, your equity can be used to get heavy burdens off your back, and allow you to live more freely.
BUSINESS AND EDUCATION
Your equity can be used to further expand or start business ventures that will benefit you long term. Investing education can help you go further in your career, and secure a brighter future for your children.
YOU HAVE A NUMBER OF OPTIONS AS TO HOW YOU CAN MONETIZE YOUR HOME EQUITY:
OPENING A HOME EQUITY LINE OF CREDIT (HELOC)
Your property can be secured through this line of credit, and this is a good option for you if you are not planning on using all your home equity at once. Like other lines of credit, you will receive statements and make monthly payments. As you continue paying off your mortgage, your available credit will continue to rise. You can get up to 65 percent of the property’s value and in order to get HELOC you need to at least 20 percent equity in your home.
GETTING A HOME EQUITY LOAN OR A SECOND MORTGAGE
A home equity loan, unlike a HELOC, is a lump sum amount that you will receive at once. The interest rate and monthly payments are fixed and you can therefore budget for them. In a second mortgage, you are able to take up to 80% of the assessed value of your home subtracting the balance owing of your first mortgage. It is recommended that you only go with this option if you are certain you will be able to pay off the second mortgage in less than 4 years. You might still be able to get a second mortgage if the combined value of your first and second mortgage exceeds 80 percent but you need to pay for default insurance and have an exceptional credit score. Otherwise, it might make more sense to go with a private lender where mortgage default insurance is not required but the rates might be higher.
REFINANCING YOUR CURRENT MORTGAGE
This option will require you to break the current contract you have in place for your mortgage and you might end up paying penalties. However, you can add the equity value to your current loan balance. This method will also allow you to take advantage of lower interest rates or shop around for a better deal for your entire mortgage. Keep in mind that you must have 20 percent equity in your home. One popular reason to do so is when you have high interest debt, such as credit card debt. In some instances it is cheaper to refinance than to pay the interest on the credit card. The only risk is that you are reducing the equity in your home. Some private lenders might allow you to take out above 80 per cent of the appreciated value of your home depending on your personal finances and location of the property.
There are a lot of ways to go about each of these solutions and if you are interested in exploring your equity options, we can provide specific outlines of the different options available to you, and find a plan that works best for your financial future.