Understanding Home Equity
What Home Equity, and How Do I Access it?
If you’re a homeowner, you’ll probably have equity.
Home equity is the difference between the value of your home and what you owe against it; essentially equity is the portion of the home that you “own”. There are different channels to access your home equity and a few types of products that you may qualify for, depending on your unique situation.
Most homeowners start by approaching their bank for a conventional mortgage or home equity line of credit, though with increasingly stringent regulation, the banks are declining more borrowers than ever.
If you’ve filed a consumer proposal payout within the last few years, the bank will not approve your application.
There are, however over 10,000 mortgage agents and brokers that work with trust companies, credit unions and private lenders that have the ability to take your application to a number of potential lenders to get you the best deal for your situation.
According to reports, the mortgage broker network handles less than half of all mortgage transactions in Canada and is strictly regulated for consumer safety.
Many home equity products do not involve making any changes to your existing mortgage.
How do I Know if I Qualify?
Most mortgage agents and brokers work with lenders that don’t care about your credit and income. Due to the demand for alternative financing in Canada, many lenders have accommodated their clients by considering solely the home’s equity when considering a loan.
These lenders will loan up to 85% of the value of your home depending on certain factors, primarily; the location of your home, the condition of your home, whether you are on municipal services, the average days-on-market for salability purposes and most importantly; your story.
If the lender believes you will be able to solve other issues with your application with this financing, such as credit and debt service (income vs. expense), they will be prone to consider the loan. Mortgage agents and brokers build an application on your behalf to take to these prospective lenders to ensure you get the best deal you qualify for.
Typically, if you take into account whatever debts must be paid using the loan, add it to your existing mortgage, and you do not exceed 70%-80% of the home’s value in an urban centre you may qualify; 60%-70% in suburban; 40%-50% in extremely rural areas.
Why Should I use my Home Equity to Pay out my Proposal?
Are there any Disadvantages to Tapping your Home Equity?
If you have the ability to access your home equity you may want to consider paying out your consumer proposal.
In so doing you will begin the credit repair process much faster than sticking to your original payment plan. Depending on the amount of your monthly payments, securing a home equity loan might actually reduce the amount of your monthly payment as well.
If your existing mortgage is approaching renewal, it’s prudent to consider paying out your proposal in case your existing mortgage holder decides to do a credit check; having an open proposal can sometimes cause your mortgage lender to change the terms of your mortgage upon renewal.
The only disadvantage to using home equity to pay your proposal faster is that there are lending fees, and the new loan will carry an interest rate, although when compared with the increased interest rates on other finances such as cars and new first mortgage rates due to the impact of the proposal on your credit the future benefit often outweighs the cost today.
Your Morgix representative works with a network of mortgage professionals that can help you navigate this path.
Contact us today to complete a short, one-page application and provide some supporting documents such as; a proof of income, a mortgage statement, a property tax statement, confirmation of home insurance and two pieces of photo ID.
Typically, there will be an appraisal required on the home before a lender can commit to financing, but the whole process can usually be completed within 30 days.