12 months ago ·
by Adam M ·
Everyone wants to take advantage of the booming Ontario real estate market. Selling might be the best option for the financially established homeowner with multiple properties; he can down-size and retire in Florida with all of his saved up equity. For those of us who don’t want to sell, a home equity loan or second mortgage is usually the best way to turn the increase in our property’s value into actual cash.
Smart Refinancing Can Help You Get Out of Debt
Generally speaking, Canadian households spend more than they make. Whether it’s the easy access to credit, or our culture of consumerism, we are all guilty of it and Canadians are seeing much of their disposable income being used to service their high-interest debts. As debts continue to pile up, your credit score will start to decrease from over-utilization, and most banks will turn the other way right when you need them the most.
If you are in a position similar to this and you don’t want to sell your family home, maybe a home equity loan or second mortgage is right for you. Get out of debt, lower your interest rates, save money every month and rebuild your credit score in the long run. All of the associated closing costs will be tiny in comparison with the amount of interest you will owe compounded over time, or the realtor fees you will pay with selling.
Choosing the Right Mortgage Brokerage
This market is inundated with overzealous marketing messages: quoting a rate without much information, or getting funds overnight etc. The truth is that there is no magic wand that will allow clients to skip the essential parts of the process. Also, beware of working with brokers who use different sales, pressure, or stall tactics to put you in a situation where you feel you have to sign whatever they present. When you are calling around to find the right company, beware of quick cookie-cutter answers as to what your rate will be. If someone is willing to quote a rate on the first phone call, it is unlikely that they are being truthful and are just trying to gain your business.
If you want to get out of debt, work with a company that understands that its reputation is driven by their customer service. Interest rate is not the sole factor, nor the most important, in determining the quality of a mortgage broker’s service. A financial professional needs to ask the right questions, with a certain level of industry and product knowledge, in order to come up with the right plan of action, or to place their client into the right product.
The Right Way to Get a Home Equity Loan
You can prepare by gathering your documents, for example, your mortgage statement, property tax bill, and income documents.
The right way to ensure you get the best deal on the market is to gather the right documents up front, for example, mortgage statement, property tax bill, income documents etc. You will also need to have an appraisal completed on your property by an approved appraiser. This is the only way a lender can truly underwrite your property, and determine what they can offer you for financing.
Do your homework. Chances are, if you work with a reputable company, the deal that is presented IS the best option available for your unique situation.
2 years ago ·
by Chelsey T ·
Home equity loans are a great option to use if you need to make some home improvements, or are looking to consolidate some of the other debt you owe on, but you aren’t able to get a loan through another traditional method or you want to enjoy the lower interest rated compared to other loan options. While you do need to have a decent credit score and a good debt to income ratio, as well as own your own home and have equity, this is one of the easiest methods to use to get money for some of the things that you need.
When getting a home equity loan, you will need to borrow against the value of your home. This is not the current value market of the home, but rather the amount that you have paid off. For example, if the home has a fair market value of $300,000 and you now owe $200,000 on it, your equity in the home would be $100,000. Your lender is usually going to allow you to borrow up to 80 percent of this amount, so $80,000 in this situation, but it is still a great way to get your finances in order if needed.
If you need to consolidate some of your debts or are looking to make some improvements to your home and are finding that other loan sources are not working well for your needs, consider using a home equity loan to make the process easier.
Benefits of These Loans
While we have spent some time talking about the benefits of getting a home equity loan, this is really one of the best methods you can use to get a loan, especially when your credit is not perfect or you need some help with other aspects of your finances. While you do need to be responsible when taking out these loans, they often are a bit more lenient on your credit compared to other loans and the interest rates are often the best. Some of the benefits you can enjoy with a home equity loan includes
Low interest rate compared to other consumer debt or loans
Easy to qualify and having low credit does not automatically disqualify you.
The costs that you pay for interest can often be deducted during tax time.
It is easier to get a larger loan using your home equity compared to what you can get on your own.
Finding the Best Loans
To get this kind of loan, you will need to do some research. Not all lenders are going to offer the same terms and often they will have different requirements before getting the money, regardless of how much equity you have in your home. Keep in mind as well that this is like a second mortgage and you need to keep track of your payments and not become delinquent, or you could face losing your home. But for those who just need some help getting their debt in order or making some improvements to their home and who are responsible for making on time payments, this can be one of the best loan options available.
To find the best home equity loan for your needs, you should:
- Shop around. Not all lenders are the same and if you go with the first lender you find, it is often going to cost you a lot of money. Contact a few options to see if you can get a better deal.
- Work on your credit score. While these loans are often willing to work with those who have lower credit scores, showing that you take your finances seriously and working to increase the credit score leading up to your loan can make it easier to get funds.
- Ask for recommendations on who to use.
- Compare the offers and find out who is going to work the best for you.
While all of this may add a bit of work to the process, it could help you get the best rates on your loan possible. Even a simple reduction in the interest rate could help to save you thousands over the time of your loan.
Tips to Do it Right
Before you fill out a home equity loan application, consider if this is the right loan for you or if you should even take the money out. Keep in mind that if you are not able to pay this loan back, you could risk losing the home so perhaps another type of loan would be better for your situation. Or, do you really need that money in the first place? Man people find this loan an easy way to get money and so will take out more than they need and can’t pay it back. Really look at your finances to ensure you are safe and consider getting insurance to help cover the payments in case something does happen and you can’t make the payments.
Applying for a home equity loan is not a difficult process, but you do need to be prepared. You will need to go through and make a plan about your income as well as any expenses that you currently have. Do you already have a high level of debt to income and how is this new loan going to factor into the number? If you are using the money to pay down your debts, that can be helpful, but you must still ensure that the debt to income is under 45 percent if you would like to get qualified.
The application process will often ask a lot of questions about your personal and financial history and you may need to provide some documentation of work, the value of the home, and other assets. Consider getting it all organized before you start the process to make it all go as smoothly as possible.
2 years ago ·
by Chelsey T ·
Loans and other debt can often cause issues with your finances. You may be paying high on your credit card debts or have some student loans that are getting too high. Sometimes you may wish to make some home improvements to your home but aren’t able to get the funds necessary because of your bad credit. If you need some funds to help get your finances in order and you own your home, you could qualify for a home equity loan to help get the money you need. While many people assume that they are out of options, the home equity loan can be amazing for those who understand how to use it and who will use it responsibly to make their financial life a little bit easier.
What is a Home Equity Loan?
A home equity loan is one you are able to get based on the value of your current home. You will only be able to get this loan if you have a home you can use as collateral. When used wisely, it can be an efficient way to pay down your other debts, or make home improvements at an affordable rate that isn’t available through other means.
To get one of these loans, you will need to figure out how much equity your home has in it. For example, if you purchased a home for $200,000 and still owe $100,000 left to pay, your equity in the home would be $100,000 and you would likely be able to get a home equity loan based off part of that amount.
Qualifying for the Loan
To get one of these loans, there are three things that need to fall into place; income, credit, and home equity. While having a low credit score is not going to disbar you from getting the loan, the higher you can get your credit score before applying, the higher your chances of getting the loan. A credit score that is in the mid-600s or above is usually preferable, but you can sometimes find lenders who will work with slightly lower.
Your income is also important because you will need to pay back the loan, unless you plan on losing your home, so lenders will take a look at this number as well. When looking at your income, a lender is going to look at some of your other debts and determine how much you will have left to pay your obligations. Your debts should never exceed 45 percent of your monthly income to qualify for this loan.
Different Types of Loans
Home equity loans are available in two types: the home equity line of credit or the standard home equity loan. With the standard option, you will borrow a certain amount of money, based on your home equity, and then work on paying it back based on a payment plan you have with the lender over time.
With the home equity line of credit, you will be able to borrow money, up to a limit that is already set, any time that you need, and then pay it back as you borrow the money. This works similar to a credit card, but you will borrow the money rather than charging it and the interest rates are often much lower.
How Much to Borrow?
Many people who are considering a home equity loan wonder how much they are able to borrow. In most cases, you will be able to borrow no more than 80 percent of the equity you currently have in your property. This gives a bit of cushion for the equity so you don’t overextend yourself.
To figure out the numbers, find out the value of your home and subtract what you owe on the mortgage and other liens against the property. Multiply by .8 and you will have the amount of equity you are able to borrow against. Your lender will use this number when you apply for the equity loan.
Benefits of Home Equity Loans
There are many benefits to taking out one of these loans if you need some money to pay down other debts or to make some home improvements to your home and aren’t able to get the money from other locations. Some of the benefits include:
- Loan rates are lower compared to other debts you are paying on.
- You can choose the way you use the money without having to tell the lender.
- The interest on these loans can be deducted at tax time.
- It is easier to get these loans with bad credit.
- You have a lot of time to pay these loans back, usually 15 to 30 years.
One thing that you need to be careful with when it comes to these loans is to not default on the payments. You are effectively taking out a second mortgage on your home so if you’re not careful, you could lose your home. These loans are relatively easy to get and many people will take out too much money, forget that the interest rate is variable, or will be irresponsible with the money. This could result in defaulting on the loan. Make sure to just take out the money if you really need the money and you are sure you can pay it back on schedule.