As inflation remains high, many Canadians are finding it difficult to make ends meet. Accessing home equity is one way for homeowners to lower their monthly expenses and ease their financial burden. It’s an opportunity to consolidate very high-interest debts by taking advantage of increased home values and comparatively lower rates. Additionally, accessing equity can free up money to put towards other priorities in your life such as tuition, renovations, or investment opportunities.
In this blog post, we’ll discuss how to go about accessing equity from your home to create financial opportunities. Here’s a look at three of the most common ways Canadians use their home equity. But first, the basics.
What is home equity
Home equity is the value of the property that you own – it’s the difference between what your property is worth and what you still owe on it. For example, a homeowner with a property value of $600,000 and a mortgage value of $400,000 has exactly $200,000 of home equity.
mortgage value + home equity = property value
Knowing how much equity you have in your home can help you make informed decisions about your finances. Before considering your options, it’s best to know how much equity you’ve built up in your home since purchasing. Once you understand how much equity you have, then you can start planning the best way to leverage it.
How debt consolidation helps
You might be surprised to learn that the equity from your home can help you pay off debt faster. This is because mortgages have interest rates lower than credit cards do, making them an even more attractive option for those looking to reduce debt expenses.
If you’re struggling with multiple loans, credit cards or other debts and are looking for ways to lower your monthly payments then consider debt consolidation. Generally speaking, consolidating debt helps reduce the monthly interest cost so you can pay your loans off faster.
3 options for accessing your home equity
1) Refinancing
Mortgage refinancing is when a homeowner pays off their existing mortgage with a new one, usually with different terms. This can be an opportunity to get a lower interest rate, saving money on monthly payments. Additionally, homeowners may also be able to choose a different type of mortgage that better suits their needs. Your mortgage can be refinanced with your existing lender or a new one.
Refinancing a mortgage can save you money every month and might even let you pay off your mortgage sooner. If you are interested in exploring this option, watch out for hidden fees that could cancel any savings. It’s not the right decision for every homeowner, but it is worth considering for anyone who wants to lower their monthly expenses.
2) Home equity line of credit (HELOC)
Another way to access available cash each month is to take advantage of a home equity line of credit (HELOC). A HELOC loan uses your home’s equity as collateral, up to a certain limit. This means that you can borrow against the value of your home, up to 80% of its appraised value (under today’s lending rules), and use the funds for any purpose you choose. Mortgage rates are still low, so this is an ideal time to explore your options. By taking advantage of a HELOC today, you could potentially lower your monthly payments and free up some extra cash to cover other expenses.
3) Reverse mortgage
A reverse mortgage can help seniors stay in their homes longer by giving them access to cash from their home equity. The money can be used for any purpose, including paying off debts, making home improvements, or covering everyday living costs. And because the loan is only repaid when the house is sold, there is no need to worry about making monthly payments. For many seniors on a fixed income, a reverse mortgage can be a lifesaver during times of financial difficulty. However, reverse mortgages come with high-interest rates and fees, so it’s important to understand all the terms before signing up.
Note: Reverse mortgages are available only to homeowners over 62 years old who own their homes outright or have a very small amount left owing on their mortgage.
Talk to a mortgage specialist about your options
For many Canadians, their home is their biggest asset and investment. And in today’s world, with the cost of living on the rise, it’s more important than ever to make smart decisions about how we use that asset.
If you find yourself in a situation where you need to access the equity in your home, know that you have options. Before making any decisions, be sure to contact your mortgage specialist for advice and more information about the products available to homeowners like you. They can help you understand how much equity you have available and what options are available to you. There are a lot of factors to consider when tapping into home equity and it’s important to talk with someone who understands the process inside and out. Don’t wait – get in touch today!
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