A Home Equity Loan can be used to access up to 75% of the value of your home. The money you receive from a Home Equity Loan or Private Mortgage can be used for anything you wish. While you can borrow smaller amounts, we recommend a minimum loan amount of $50k+. Depending on your needs, it can be difficult to justify the fees for a lesser sum.
Here are the top 5 for taking out a Home Equity Loan.
1. Debt consolidation – by far the most common reason to seek a Home Equity Loan. Usually, a set of unexpected circumstances has lead to financial difficulties and now it becomes challenging to keep on top of credit card payments, vehicle loans, and lines of credit. Such debts charge anywhere between 10%-30%. Coming up with the interest-only payment each month would be a struggle. Using a Home Equity Loan to consolidate all of your debts into one simple payment can help you to get ahead. Here is a demonstration of a frequent scenario.
|Debt Type||Interest Rate||Balance Owing||Minimum Monthly Payment|
|Credit card department store||29.99%||$10,000||$300|
|Line of Credit||10.00%||$15,000||$250|
|Total $50,000||Total monthly interest $1300|
New solution using a Home Equity Loan/Private Mortgage
|Deby type||Interest rate||Balance Owing||Minimum Monthly Payment|
As you can see, a Home Equity Loan saves around $844 per month in interest. We would then suggest using a portion of the savings to apply to the principal balance. With regular prepayments (additional payments), the loan could be paid off rather quickly and allow you to get a fresh financial start.
2. Tax Debt – a matter that usually requires quick action. You do not want to owe income tax to Canada Revenue Agency or Property Taxes to the city. Both entities can and will charge penalty’s, late fines, and interest. Also, your ability to borrow money is hindered and a new creditor/lender will require that these debts are paid in full, before advancing you further funds.
Many homeowners and business owners assume that they can simply refinance their home with the bank to pay off outstanding tax bills. What you may be surprised to learn is that banks and credit unions do not refinance their mortgages to pay taxes.
A Home Equity Loan, on the other hand, can be used to pay off such debt. Once paid, we can look at applying with a regular financial institution to eliminate the more expensive equity loan.
3. Home Renovations – Home Equity Loans are usually a consideration when you plan on renovating your home to sell or you need to finance a larger home repair. Examples include but are not limited to kitchen and bathroom updates, new flooring, new roof, room addition, balcony/decks, and landscaping In most cases, the mortgage is “open” which means that you can pay out the loan at any time without penalty.
4. Legal Costs – for legal matters which may cost more than a few thousand dollars, a first or second mortgage may help. Common legal needs stem from separation and divorces. We also see family helping family when a loved one has conflict in a civil or legal proceeding. The money in most cases will be ready within a couple of weeks.
5. Helping Family – family members also like to help each other with debts, down payment, wedding plans, or literally anything else you can think of.
Here are a few other reasons you may borrow from the equity in your home.
6. Unexpected or Temporary Expenses – stuff happens! Sometimes we’re faced with unforeseen costs that need attention. Home repairs, medical expenses, and travel to visit family are just a couple of examples.
7. Pay For Education – education is a large expense, especially when your child is accepted into a university for a 4+ year program.
8. Business Investment – it may be time to inject cash into your business or perhaps you wish to invest in a new business venture. Also, many of our clients use their home equity to quickly purchase shares in the company they work for.
9. Purchase Property – accessing your available equity is a quick and easy way to secure funds towards the purchase of a rental home, vacation home, or fractional ownership.
10. Strata Assessment – similar to tax debt from the view of a traditional mortgage lender. Banks and credit unions shy away from financing strata properties where there is a scheduled or ongoing property assessment. Often times, such projects uncover deeper issues and are forced to run over budget. Also, if for some reason you default on the mortgage, the property becomes less marketable for the bank to recoup their losses while large repairs or improvements are underway.
Home Equity Loans, however, can be a suitable short term solution. The money can be used for the assessment and upon qualification, paid out by a regular mortgage.
While the money you receive from a Home Equity Loan or Private Mortgage can be used for anything you need, it’s important to note that other options may be more suitable. Speak with us, independent and licensed Mortgage Advisors, before applying anywhere for a Home Equity Loan. We will explain your best options and help you come to a decision that is best for you and your family.