Home Equity Advantage

If you are a homeowner and find yourself in need of borrowing some money, a home equity loan may be the solution that you are looking for. A home equity loan is another way of saying second mortgage. It is based on the current value of your home and any outstanding balance that is left on your mortgage. For example if you own a house worth $500,000 and you have $100,000 of equity in the house, you can apply for a home equity loan using the $100,000 as a security for the loan. Many lenders require at least 20% of the mortgage be paid off before lending money but certain lenders may approve the borrower with as little as 5% equity. Home equity loans are quite common and are available at most every major Canadian financial institution.

Equity loans can be useful to fund home renovations, debt consolidation, student loan repayments, or starting a business. Fortunately for many Canadians, the interest paid on a home equity loan may be tax deductible giving a distinct advantage over other loans. Home equity loans are generally much easier to get than your first mortgage, as there is a valuable piece of collateral at hand which is the existing home. Alternatively, there are some drawbacks to consider. The main disadvantage is that your most valuable asset is held as collateral by the bank. If you happen to default on payments on the second mortgage your house may be taken from you. Making sure that you are in the correct financial position to take on a second mortgage is imperative to avoid being in an extremely scary situation. Furthermore, home equity loans can have many fees associated with them such as closing fees, appraisal fees, title fees, and stamp duty fees. These can either be paid up front or can be added into the loan.

Home equity loan refinancing is also available to homeowners. This option allows the homeowner to pay off their mortgage with the money from the secondary loan using their house as security. If interest rates are decreasing, arranging home equity loan refinancing can lower your mortgage rates and save you thousands of dollars over the course of your mortgage.