Getting a home equity loan is a great financing solution for a lot of people but what does it really mean? What is meant by borrowing against home equity in Canada? Is this something that sounds like a smart decision at this time?
What Is Home Equity?
Do you know that if you’re a homeowner in Canada, it means that you are sitting on a large sum of assets in the form of your home equity? This is true whether your home has been fully paid for or not. Your home equity represents the value of your property that you truly own at a given time. It is a financial asset that is yours even when you are still paying some mortgage for your home. It only passes hands when your home changes ownership and thus, it can be used as collateral for a home equity loan.
You can estimate your home equity by subtracting all existing debts on a property from the home’s current market value. The amount that you can borrow with a home equity loan can be determined by this estimate. The bigger your home equity is, the more money that you can borrow against it. If you are not planning on tapping into your home equity, you can keep growing it by paying your mortgage or helping your home increase its market value.
What Is A Home Equity Loan?
A home equity loan is a secured loan that a homeowner can borrow from a bank, a private lender, or a financial institution with the help of their home equity. Different lenders have different requirements but overall, the common requirement for borrowing against home equity is simply to own a certain percentage of home value.
This type of loan is very popular amongst homeowners because the interest rates are much friendlier than other types of loans since lenders feel more confident about lending money if the loans are against a solid collateral like real estate.
You must keep in mind that borrowing against home equity should be done with caution because nonpayment may result in losing your home. With this said, you will have several options to choose from so that you can pick which type can be most beneficial for you. You can also pick a borrowing option based on your current financial situation to ensure that you will be able to pay.
When done right, a home equity loan can smooth out recurrent financial issues and help you set up your future with better financial management. It is important to borrow from lenders who are willing to work on a win-win agreement and will not take advantage of you if future difficulties arise. You can have some control over this by going for lenders vetted by mortgage brokers or those who have an excellent lending history.
Home equity loan options include mortgage refinancing, a HELOC, or a second mortgage. Each one got pros and cons which we will be happy to discuss with you. Contact us if you’re thinking of borrowing against your home equity in 2021.