Home Equity Loans in Barrie
What is Home Equity?
Home Equity is the portion of equity a homeowner has in their home. Over time, if the property value appreciates, or if the total loan’s balance is paid down, the equity increases.
Home equity is the piece of your property that you fully "own." You're still considered to own your house, but if you had borrowed money to purchase it, the lender you borrowed from also has a strong interest in it until you pay off the loan in full. You may not be able to sell your equity separately, but the home equity loan allows you to improve your financial situation.
There are three different types of home equity loans available here in Canada. A home equity line of credit, a mortgage, and a reverse mortgage. A mortgage brokerage that services Barrie, such as Mortgage Broker Store, can help arrange all of these types of mortgages.
How to Borrow Against Home Equity in Barrie
As a major city in Ontario, Barrie, with a population now of more than 150,000, is considered an attractive market for mortgage providers. A general rule of thumb is that you can borrow up to 75% of the value of the property with some key exceptions. These key exceptions include refinancing properties with large tax arrears or liens. If you are planning to refinance an existing mortgage, the 75% rule does still apply. Only certain lenders, such as banks, can offer mortgages with less than 20% equity and only when the mortgage is insured.
A second mortgage is an additional mortgage you take out that you must continue to pay off while you are paying off your first mortgage. If you can not make your payments, your loan goes into default and you may lose your home. For example, if you have a home appraised at $300,000 and you owe $100,000 you can borrow $225,000 (75% of appraised value) – $100,000 (balance you owe) = $125,000 for your second mortgage. The rate for your second mortgage is generally higher than your first and is either a fixed or variable interest rate. This example used the 75% rule which was discussed previously. Some of these second mortgages also require the loan to be paid off over a set period, with payments that include both the principal and the interest.
You may already have a home equity line of credit or HELOC for short. With a HELOC you can access the money as you need it, and the money is re-advanceable if you decide to pay any portion back. You can also access your HELOC through credit cards or cheques. These HELOC interest rates are lower than that of credit cards and those of unsecured loans.
Rates and Fees for Mortgages in Barrie
In Barrie, the rates and fees charged for most of these home equity services will depend primarily on the type of lender they are. As regulation is stricter for A level lenders such as Banks, they will charge between .5% and 1% in fees and a rate between 2.5% and 4.5%. Secondly, for B level lenders such as trust companies and credit unions, a rate between 4% to 6% is usually charged and will include 1% to 2% in fees. Lastly, C level lenders such as private lenders will charge rates between 7% to 12% and will include 4% to 6% in fees.
Reverse Mortgage Options
Reverse mortgages are mortgages that are only offered to seniors aged 55 or older. However, they are a popular way to finance living expenses. Both you and your spouse must be aged 55 or older to qualify and both must be listed on the title of your house. Second, the house must be your primary residence which means, you must live there at least six months out of the year. Things considered by lenders include age, where you live, your home's condition as well as the home's appraised value. With this option, you can either take one lump-sum payment or one sum upfront and take out further payments over time.
Home Equity Loans vs Other Types of Debts
In general, Home Equity loans are cheaper than credit cards and other unsecured debts. Since they are secured by your house. If, however you break the terms of your mortgage contract, the lender can take your house and sell it via power of sale. A power of sale is a clause written into a mortgage authorizing the mortgagee to sell the property in the event of default to repay the mortgage debt.
Home Equity Loans, however, are great to continue to improve on your quality of life. These include uses such as home renovations, home improvements or extensions, a new car, to cover children's school expenses, for your business and debt consolidation.