Do you wish to buy a new house but don’t have the necessary funds? If you have equity, the options for this may become more available. However, there are a few factors to consider when buying a second house with equity from your current property. All of this will be covered in this blog post.
How much equity do you have?
If you want to use the equity in your own house, you must first determine how much equity you have. Home equity refers to the difference between the value of your property and the amount owed on your mortgage. If your house is worth $300k and you owe $200k on the mortgage, you have $100k in home equity.
Your home equity grows in two different ways: when you pay down your mortgage and when the value of your home rises.
If you want to buy a second house with equity in your current property, you will have to approach it differently. In other words, you need to benefit from the excess value of your own home without having to sell it.
You can borrow up to 80% of your home’s appraised worth. Deduct the sum on your mortgage, the entire amount of your HELOC, if you have one, and any other debts secured against your property from that amount.
Your lender may agree to refinance your house using one of the following methods:
Using equity to purchase a second home through a second mortgage
To be able to use your equity to purchase a second home, you must first make the money accessible. This is sometimes referred to as ‘cashing in your equity.’ This is often possible by privately raising your mortgage. However, because a second house requires more money, a second mortgage is a better option.
You then get a new mortgage on top of your existing mortgage. This is handled by your current mortgage provider. You establish new agreements about the fixed interest period and the interest rate you pay.
Instead of taking out a second mortgage, you can transfer your mortgage and use the equity in your property to purchase a second home. This implies you transfer your entire mortgage to a new lender which provides you with better terms and a reduced interest rate. This way you can benefit from lower monthly payments.
Our Mortgage Expert at Cashin Mortgages can calculate for you to what extent refinancing is or is not favourable for you.
Getting a Home Equity Line of Credit (HELOC)
A HELOC functions similarly to a standard line of credit. The main difference is that it is secured against your house. You can borrow money at any time, up to your credit limit. You can use a HELOC to borrow money when you need it, pay it back, then borrow it again.
A HELOC’s interest rate is changeable. They will shift as market interest rates rise or fall. Administrative fees, like appraisal fees, title search fees, title insurance, and legal fees, may be required.
Taking out a Reverse Mortgage
You can borrow up to 55% of the value of your house with a reverse mortgage. To qualify, you must be a homeowner and at least 55 years old. Reverse mortgages do not have to be repaid unless the homeowner decides to purchase another primary residence, moves out, or dies.
The main problem is that reverse mortgages have higher interest rates than first mortgages, and interest will build from the beginning of the contract.
Cashin Mortgages’ Mortgage Experts can assess to what degree a reverse mortgage is or is not beneficial for you.
Source: Canada.ca , Canadianrealesteate.ca