What is Home Equity?
Your home equity is determined by subtracting your current mortgage balance from the current market value of your home. For example, if your home is valued at $900,000 and you owe $500,000, you have $400,000 in equity. The loan-to-value ratio (LTV) in this example is 56%.
Your home will likely need an appraisal to determine its current market value, conducted by a qualified appraiser chosen by the lender.
Options for Home Equity Loans
If you considering a home equity loan, you can opt for a second mortgage or a Home Equity Line of Credit (HELOC).
Second Mortgage
A second mortgage is as implied, it is secondary to your first mortgage, which means when the house is sold, the second mortgage is paid off after the first mortgage. You may want to consider a second mortgage if you don’t want to break your current low-rate mortgage and incur fees.
Compared to an unsecured loan, a second mortgage often has a lower interest rate and higher loan amounts. However, you can expect a higher rate than on your first mortgage. One of the advantages is that if you have poor credit or low income, you may still qualify for a second mortgage. The combined total of your first and second mortgages cannot exceed 80% LTV, although, some lenders may allow up to 85%.
HELOC – Home Equity Line of Credit
A HELOC offers you financial flexibility. You can access funds as needed and decide when and how much to borrow, up to your HELOC limit. A HELOC is re-advanceable when you repay the borrowed amount, and there are no prepayment penalties.
Qualifying for a HELOC requires good credit and a stable income. A HELOC generally has variable interest rates that fluctuate based on market conditions, so your payments can change, and you are typically only required to pay monthly interest.
With a HELOC, you can borrow up to 65% LTV, but the combined total of your HELOC and first mortgage cannot be more than 80%.
Home Equity Loans from your Brampton Mortgage Broker, Rakhi Madan
If you’re a homeowner in Brampton, Toronto, or the GTA, and you want to access your home equity, reach out to Rakhi Madan, your trusted Brampton Mortgage Broker. Rakhi will assess your situation, provide personalized guidance, and help you explore the best Home Equity Loan options to meet your specific financial goals and needs. Don’t hesitate to contact Rakhi Madan for expert advice and support if you have a financial need or are looking for financial flexibility.
