Equity take out mortgages (through a refinance, second mortgage or home equity line of credit) are good short/long term solutions to free up cash flow or to increase available liquid cash for whatever your needs not limited to but including; renovations, repairs, investments, down payments for properties, etc. This type of mortgage is tied to the equity of your existing property, so an equity take out mortgage is only possible if the owner has the available equity (maximum 80%-85% depending on type of loan) after the fair market value and other registered mortgages are taken into consideration. An equity take out mortgage can be arranged as a fixed sum amount with a fixed rate or as a variable rate and in the form of a line of credit (secured) where the borrower may use the funds available and pay back the principal using their own discretion.
Typically, a home owner’s largest amount of net worth is in their home. If the owner has owned this property for many years, the combination of property appreciation and payments toward principal have accumulated a significant deal of equity. When the homeowner needs funds (for endless reasons), the cheapest and safest way to obtain necessary funds is through an equity take out mortgage. This option is preferred by home owners as the interest rate is much lower and the lending criteria are far more flexible than unsecured loans or other means of obtaining funds.
Important things to keep in mind when considering an equity take out mortgage are:
- What type/amount you qualify for (The qualification guidelines are different than those of a regular fixed first mortgage – maximum amount is 65% of appraised value, up to a maximum total of 80% inclusive of first mortgage)
- The costs involved including; penalties associated with breaking your first mortgage (this is not involved in all options), legal fees, brokerage fees, appraisals, etc.
- Choosing the right option – benefits/downfall of one option over another
- How has your personal financial situation changed? / How has the lending criteria changed?; Since you last purchased/refinanced/mortgaged your property?
At Canadian Mortgage Services, we will work with you, and our flexible portfolio of lenders, to obtain an equity take out mortgage that best suits your long/short term financial goals and repayments plans.