Simply put, home equity is the share of the home you own outright. It’s the market value of your home minus your debts. These debts could be what’s left on your mortgage, your home equity line of credit, and/or other secured loans.
Let’s say you bought your home for $600,000 with a $200,000 down payment and a $400,000 mortgage. If the market value of your home doesn’t change, your home equity is $200,000.
In the likelihood that the market value of your home increases, say from $600,000 to $700,000, then your home equity increases by the same amount, while your mortgage amount simply goes down ever so slightly based on your payment terms. That’s why it’s so important to know your property value—an increase in property value means that you have access to more home equity.
Being able to use your equity without selling your home can help you in a number of ways. Whether using your home equity means paying for a renovation or an expansion to increase your home’s value or to fund your children’s education. With the right lender, you can get onto a better financial path that helps you maximize your equity.
Increasing your equity
You can increase your home equity either through loan repayments or having the value of your home increase.
Most homeowners have a standard amortizing mortgage loan with equal monthly payments. These payments chip away at paying back the principal amount of the home, plus interest.
Over the years, these payments pay off more and more of the home’s principal, and you’ll build more equity.
Another way equity increases is when your home’s value increases. In Toronto, a strong real estate market (increased by 17% in April 2019) is fueling this without any effort on the homeowner end. Renovating and making other improvements boost your home’s value, too.
Using home equity
Roof sprung a leak? Emergency medical issue? There’s no shortage of reasons why you might need funds right away. Knowing that you can borrow against your home should make you feel relieved, not stressed.
There are many benefits to a home equity loan, including:
- You can get a lower interest rate than a personal loan, credit card, or unsecured line of credit.
- You’ll receive the money in a lump sum.
- Your interest rates will likely be fixed.
- You can negotiate a flexible-term loan that allows you to consolidate your debt at lower interest when it comes time to renew your mortgage.
- You can avoid mortgage penalties that come with refinancing your mortgage before it’s time to renew.
There are some considerations to keep in mind if you choose to borrow against your home:
- You will have to pay closing costs and may have to pay other fees, depending on the lender.
- If you decide to sell your home, you’ll have to pay off this debt immediately.
- If you can’t make your loan payments, you could lose your home to foreclosure.
Home equity loans are a quicker route to access funds and can help with unexpected financial expenses.
Ready to get started?
Cannect was founded to help Canadian homeowners like you. At Cannect, we work to understand your unique situation. Together, we’ll design a flexible, affordable, and long-term solution to put you on a better financial path.
It all starts with a CannectFlex loan, which couldn’t be more different than other private lenders. CannectFlex is a reasonably priced, flexible loan that gets you access to money today, without putting you in a difficult financial situation tomorrow. In fact, 70% of CannectFlex customers have gone on to renew their mortgage at a lower interest rate than they have today! When have the banks ever offered you that?
Ready to take the next step with your home financing?
Get started with a free home financing quote now to compare your borrowing option or call us at 416.766.2666 to review your options today.
