If you have owned your home for many years, chances are, the value has increased significantly over time. One of the major benefits of homeownership is your ability to build equity. This growth in equity, as well as having the security of living in your own home (not being evicted by a land lord) are two of the biggest reasons most Canadians believe homeownership is the best choice for them!
For many Canadian households, their home equity is their greatest asset, and having this equity is great, but accessing that home equity and putting it to use is often overlooked when putting together a comprehensive financial plan.
Most recently, COVID-19 has caused some uncertainty in the economy, however housing prices have remained stable and even increased in value through 2020.
What is Home Equity?
Home equity is the actual market value of your property minus what you owe.
As an example, if the market value of your home is $700k, and you owe $100k you have $600k in equity in your home.
This means, that if you were to sell your home, you would walk away with $600k (minus fees) of cash in your pocket.
Now, if you aren’t interested in selling your home but you’d like to be able to access the equity you have built up over the years, for whatever reason, you’ve come to the right place.
There are 4 basic concepts or ways that you can do so.
Conventional Mortgage Refinance
Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance.
If your property is worth $500k and you owe $300k on your existing mortgage; the maximum mortgage that you could have is 80% of the value (80% of 500k), assuming you could qualify, that equates to $400k. But you already owe $300k, so the amount of additional equity that you could take out by refinancing would be $100k (less any fees to break your mortgage) to spend however you like.
What if you don’t owe anything? Even if you paid off your mortgage years ago and you own your property with a clear title (no mortgage), you can secure a new mortgage to your property. The same rules apply, up to 80% of the value of the property.
With the impact of COVID-19 on our economy, interest rates are historically low right now. It never hurts to take a look at your options.
If you are a Canadian homeowner who is aged 55 or older, a reverse mortgage allows you to turn the equity in your home into tax-free cash. There is no income or credit verification, you maintain ownership of your home, and you aren’t required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell.
Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, a lesser amount of equity can be accessed. The amount will depend on your age.
The qualification guidelines and policies are far more relaxed then the requirements of a Conventional Mortgage. The interest rates for reverse mortgages can be slightly higher than the best rates currently being offered through standard mortgage financing, however depending on your situation, this may seem to be a fair trade off for the more relaxed qualification requirements as well as the benefit of not having to make any payments.
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit allows you access to the equity you have in your home, with the requirement/ obligation of paying only the interest on the amount that you use. Qualifying for a HELOC can be tighter than for conventional mortgages and reverse mortgages. a Home Equity line of credit component can only be a maximum of 65% of the value of your property.
Second Position Mortgage
If you already have an existing mortgage, and you still need access to cash before your mortgage term is up, and the cost to break your mortgage is really high, a second mortgage option might be worth considering.
A second mortgage typically has a set amount of time you have to repay the loan (term) as well as a fixed interest rate (usually higher than conventional financing). After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it has been paid off.
If you’re looking for a way to access the equity in your home to free up some cash to spend however you like, please contact me anytime. You’ve got options and I would love to work through all those options with you.
RBC Mortgage Employee Pricing Mortgage Rates
The truth is the big banks have a substantial advertising budget, a budget that small business owners such as myself will never have. They are sinking thousands of dollars into the common message with the intent of getting consumers to focus on one single aspect of a mortgage, and that is the rate. Some people may argue that price is the most important thing to consider.
Bank of Canada Rate Announcement
This regular and predictable recent trend provides such great opportunities for re-finance, renewal and new mortgage funding. This year it may prove to be extra special as you can throw the extra incentive of the Bank of Canada’s Announcement of a rate drop, and still further cuts expected.
Employment status Impacting Your Mortgage Qualification
Regardless how you feel about the security of your position, it’s what can be proven on paper that matters most. Even if your employer has raved about how valuable of an employee you are, and even though you are on probation technically, you can rest easy because you aren’t going anywhere; or although on paper your hours are not guaranteed, in reality you will be working full time hours the bare minimum.
Access your Home Equity
If you have owned your home for many years, chances are, its value has increased significantly over the course of the years. One of the major benefits of homeownership is your ability to build equity. This growth in equity, as well as having the security of living in your own home (not being evicted by a land lord) are two of the biggest reasons most Canadians believe homeownership is the best choice for them!
Annual Property Assessment and Property Taxes
Since the property assessment has a big impact on the amount of property tax you pay, it is the primary reason why I am frequently asked how the property assessment is computed as individuals marvel why the quality is short of what they think they could offer their home for.