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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.
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.
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.