Table Of Content:
- Example
- Advantages of Taking Out Mortgages with Equity
- When Is an Equity Take Out Refinance a Good Idea?
A mortgage loan used to “take out” equity for other purposes is an equity take-out mortgage. It can be used for property repairs or renovations, as a down payment on a vacation property, as an investment in another area, or for various other purposes. Because it is tied to property equity, the property owner must have equity after deducting its fair market value and other mortgages. Equity take-out mortgage in Alberta may have a fixed rate and a fixed amount borrowed, or it may have a variable rate and be structured as a line of credit, with funds withdrawn at the borrower’s discretion.
Example
Mr. McGillicuddy owns a $300,000 home with a first mortgage of $100,000. Mr. McGillicuddy wants to buy a vacation home that will require a $30,000 down payment. Mr. McGillicuddy can obtain a $30,000 equity take-out mortgage secured by his house to fund the down payment. Because he has $200,000 in equity in his primary residence, he may obtain an equity take-out mortgage.
Advantages of Taking Out Mortgages with Equity
A borrower’s primary source of net worth is frequently their home. They may have accumulated a significant amount of equity if they have owned it for a number of years and the property has appreciated. Suppose the homeowner requires funds for any reason. In that case, an equity take-out mortgage will usually make more financial sense than other forms of borrowing because loans secured by property are typically offered at lower interest rates than those connected by other means or entirely unsecured.
The borrower is not required to use the entire line of credit if the borrower obtains equity take-out a mortgage in the form of a Home Equity Line of Credit. For example, if the borrower receives a $30,000 line of credit, they may withdraw only $10,000 at a time and may draw on the line of credit as needed. The borrower only repays and is charged interest on the amount borrowed, not the entire line of credit.
Amansad Financial offers a variety of equity take-out mortgage products. If you have significant equity in your home and want to borrow against it, we can help you choose the best to take out a mortgage in Alberta to meet your financial needs.