To provide a better understanding of what home equity is, see the example below:
Let’s assume you own a home that is worth $250,000 and you owe $150,000 on your mortgage, that means you have $100,000 in home equity. With that said, home equity is the difference between the value of your home and how much you owe on your mortgage. (source: Canada.ca)
There are two ways that build the equity of your home. One, as you pay down your mortgage, the equity increases. Two, in case the value of your home increases, that also increases your home equity.
A home equity loan is landed only to those who can afford to pay it back as some consequences can be as harsh as losing the property.
How Can you borrow against your equity?
Borrowing against home equity can help individuals with a few things:
Renovations on the house
- Paying off debt
- Buy something you couldn’t otherwise afford
To fulfill the approval of a home equity line of credit (HELOC) or a second mortgage, you will need to go through an approval process before you can borrow against your home.
Mortgage lenders like us offer home equity financing options and help individuals overcome financial hardships. Contacts us to find out more about getting approved for a mortgage.
First up, Refinancing
Up to 80% of the appraised value of your home can be borrowed. Out of that amount, you must deduct the balance of your mortgage, total HELOC amount (if you have one), other loans secured against your home.
Following the refinancing process, the lender will decide which option is best for you, such as a second mortgage, a HELOC, or a loan/line of credit secured with your home.
A second mortgage is a second loan on your home. As said above, you can take up to 80% of the appraised value of your home.
Since a second mortgage is secured against your home equity, you will start paying off the second mortgage as well as continue to pay off your first one.
Home Equity Line of Credit or HELOC
A home equity line of credit works as a regular line of credit. You can borrow up to the limit of the line of credit. Take out the money when needed. You pay it back and borrow again. This line is secured against your home.
A mortgage professional will be able to determine the best alley for your needs. Give us a call today @ 1 (888) 704-1255.