McKay offers equity take-out mortgage services in Salt Spring Island, BC
Access your home equity to pay down debt, buy another property, renovate your home – pretty much whatever you need. Let the equity in your home work for you. Your equity can help you handle unexpected expenses and tackle growing debt. After all, for most people, their home is their most significant investment. An equity take-out mortgage lets you use the money you’ve put into your home for other purposes. Here’s a closer look at how these types of mortgages work and why you might want one.
What is an Equity Take Out Mortgage?
First, let’s clear up a common source of confusion. Due to changes in Canada’s mortgage market, equity take-out mortgages are now the same thing as an equity loan, although those two terms haven’t always been interchangeable. An equity take-out mortgage turns the equity in your home into cash. Equity is the portion of your home you own free and clear. It’s the value of your house minus loans from a bank or financial institution. There are three common ways to “take out” equity from your home:
- A second mortgage
- Home equity line of credit
If you currently have a mortgage, you need to refinance. You work with a broker to obtain a new mortgage, which is then used to pay the original lender. The money left over is yours as a loan. If you’ve paid your mortgage and own your house free and clear, the process is more straightforward. You create a new mortgage which is paid directly to you instead of a lender.
What is a Take-Out Mortgage Used For?
Technically, you can use the money however you like. In practice, a takeout mortgage makes more financial sense for certain situations than others. Common reasons homeowners take out money include:
- To combat growing credit card debt
- To help with unexpected expenses
- To finance home improvements
Typically, your repayment options with a takeout mortgage are better than the terms offered with a credit card or personal loan. A take-out mortgage can have either a fixed or variable rate. These mortgages are useful for debt consolidation. Credit cards have a high-interest rate because they’re unsecured loans. However, take-out mortgages are secured loans that use your house as collateral. Secure loans almost always have lower interest rates than unsecured ones. Aside from debt consolidation, take-out mortgages are often used for home improvement and remodelling. It often makes a lot of sense to use the loan in this way. Every completed project increases the value of your home, which in turn increases your equity.
How Much Money Can I Get With This Type of Loan?
The Canadian government limits the amount of equity you can access to 80% of your home’s estimated market value. It’s a rule implemented following the credit crunch of 2008. Previously, take-out loans were far more liberal. It wasn’t uncommon to find people taking out 110% of their home’s value. Unfortunately, this led to situations where people owed more on their home than what it was worth. Use this formula to calculate total equity: Take 80% of your home’s estimated market value and subtract your mortgage balance. The result is the total equity available. Of course, you don’t have to take out the maximum amount. One significant advantage of a take-out mortgage is you can only take out what you need, which helps you manage repayment options.
Your home provides more than physical security; it can also help provide financial security with an equity take-out mortgage. Use the money you’ve put in your home to help cover mounting bills or pay for improvement projects. Many Canadians benefit from the financial boost of an equity take-out mortgage, including you.
Contact McKay Wood — Salt Spring Island Equity Take Out Mortgage Expert
If you’re interested in an equity take-out mortgage in Salt Spring Island, BC, contact McKay today.