So you’ve been paying on your mortgage for over a decade now. You haven’t taken out open mortgages (because you didn’t like the higher interest rates) but you have socked away extra money so that at each mortgage renewal you’ve been able to make a bigger dent in the principal you need to roll into the next loan. Now, though, your daughter is about to head off to college, and you didn’t quite save enough to help her with tuition, fees, room and board.
Or maybe your husband has received a diagnosis of Stage III cancer. The treatments will be invasive and expensive. He will have to take an extended leave of absence from work, which puts you down to a single income while you’re making mortgage payments.
Or maybe you just got laid off from that middle management position that you had held for almost ten years. You’ve been looking for the last nine months, but nothing has come up to match your talents. Your wife has kept her job the whole time, so you’re not burning through your savings as fast as you might otherwise be, but you’re having a hard time making ends meet for the time being, and you’ve run up some big balances on credit cards, which carry a high interest rate.
All of these are good reasons to find out how to take equity out of a house. If you’ve been making those mortgage payments regularly for years, all that money is now sitting in your house – kind of like dollar bills locked inside a giant vault. If you need to use this money for something major that has cropped up – like the list of scenarios above – there are different options to help you take equity out of the house.
One of these is a home equity loan. Let’s say that you bought the house for $600,000 and have paid the mortgage balance down to $200,000. The home’s value has appreciated to $800,000, which means that you have $640,000 in equity (the difference between the appraised value and the mortgage balance owed). If your home is in a big city in Canada, prime lenders will generally let you take out a total of 80% of the home’s equity in loans. So, your balance of $200,000 would still give you $440,000 in borrowing room, because then you would still have $200,000 (20%) in equity. Private lenders on the other hand will generally max out at 75-85% in select urban communities, and 65-70% in select rural communities.
Obviously, you don’t have to take out the maximum amount. And if you want to have the money available to you quickly without having to start paying interest on a lump sum loan, you can also open what is called a home equity line of credit (HELOC). Imagine a credit card that uses your home’s equity as the available balance. In most cases, you have a draw period during which you can access this line of credit. At the end of the draw period, if you haven’t used any of the money, you don’t owe any interest or principal. If you have used some of the money, you have to start making payments on principal and interest – but just on what you actually used, not the amount for which you were approved.
If you’re wondering if there are any other ways how to take equity out of a property, there is a cash-out refinance. In this case, you’re expanding your existing mortgage and taking the difference (after closing costs) in cash. So if you have that mortgage paid down to $200,000 and could borrow as much as $400,000 more depending on the loan to property value ration, what that means is that you could refinance, turning that $200,000 balance into $600,000, with the bank giving you a check for the $400,000 balance, less fees. Obviously, you’re signing up for bigger mortgage payments this way, or for a newly extended term of your loan’s amortization.
Many potential borrowers come to Amansad Financial every year asking “I don’t know how to take equity out of my house.” Amansad Financial niche market is sub-prime private lending. While this type of borrowing is not the ideal solution for everyone, the information is reviewed so that the best recommendation for their borrowing needs. If it is determined, that a private mortgage is not required, a partnering mortgage professional will take you through the prime lending options.