Grow Your Wealth: Purchasing a Second Property

Your Bank Said No, So Now What
Your Bank Said No, So Now What?
May 24, 2020
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Understanding Your Credit Score
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You have now arrived at a place where it makes sense to Grow Your Wealth by purchasing a second property but you are not sure where to start. If you are this person, start with an evaluation of what value of equity do you have available from your current home.

In most cases, lenders will allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. Start with an in-depth mortgage review to compare your current mortgage rate and type of term compared to what is currently available in the market.

Traditional Refinance

One popular option for tapping into your home equity is to refinance your mortgage. A mortgage Refinance includes a re-evaluation of your home and then restructuring the mortgage borrowing, rate, and terms based on the current value. This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property. Keep in mind, when using some of your current equity, it will increase the principal amount and the interest payments on your mortgage as the mortgage is now refinanced at a higher amount. The concept is to unlock the right amount of equity that will satisfy your homeownership goals without negatively impacting your family's cash flow.

HELOC

A second and popular option is to consider a Home Equity Line of Credit also commonly referred to as a HELOC. This option allows you to borrow money using the equity in your property, with the property as collateral.
A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. HELOC payments are unique as they are interest-only payments versus regular mortgages, which have both Principal and Interest payment. Another benefit to utilizing a HELOC is that you will only pay interest on the amount you actually use. This can provide financial breathing room, especially during tight months. That said, if you do choose to pay the interest as well as a portion towards the principle, it can help you pay off the loan much faster. In Canada, you are able to borrow up to 65% of your home’s value using this method. However, keep in mind, your HELOC balance AND current outstanding mortgage cannot exceed 80% of your home’s value when added together.

To discuss your unique situation please contact us.

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