Looking for help with BC Equity Loans?
One of the greatest things about owning your own home is the equity that builds every time you make a mortgage payment. Where renters are financing their landlord’s payments, homeowners are building themselves towards a future of possibilities.
The Future Can Be Now
Opportunities come up when we least expect them, and they often don’t fit into our pre-planned time lines. Fortunately, there are home equity loans that allow you to use the equity that you’ve been building in your home to take advantage of a renovation plan, capitalize on an investment, pay down high-interest debt, or anything else that is more beneficial to you than allowing the cash to sit in the walls of your home.
What is a BC Equity Loan?
The term “equity” seems to be thrown around constantly, but rarely do people talk about the real meaning behind equity. The difference between the remaining balance owed on a loan and the total value of the asset that backs it is the equity owned by the individual. For example, a $500,000 home that has been owned for 7 years and has a remaining mortgage of $350,000 gives the owner $150,000 in equity available. That’s $150,000 that could hypothetically be used to build an addition to the house, or renovate the kitchen; each of those options would add to the value of the property, thereby tipping the equity scale again, potentially re-creating equity if the added value exceeds the cost.
When Should I Use My Equity?
The basic equation for the positive use of equity in any situation is called Opportunity Cost: any return that equity could be generating in an alternative use. Mortgages typically cost anywhere between three and seven percent, depending on the market and terms of the loan. By leaving equity in the walls of your home, you aren’t paying interest on that amount; in that way the equity is benefiting you for the same amount as your mortgage interest rate.
When evaluating an opportunity, if its benefit to you exceed that mortgage rate, then a home equity loan that’s used correctly actually becomes profitable and can help you to pay back the original mortgage more quickly while taking advantage of your opportunity.
What’s the Risk of Home Equity Loans?
As with any other loan if the value of the asset that backs it, in this case your home, drops in value you may be left in a situation where the amount owed on your home approaches or exceeds the value of your home. Fortunately for us in BC our regulations and mortgage insurance have positioned us much more safely for this type of downturn than our American counterparts and a zero or even negative equity situation has very little impact on the homeowner as long as you retain ownership of the property. Once the market returns, however the equity figure can increase dramatically as the property value increases an the amount owed steadily decreases with your payments.
How Do I Apply for a Home Equity Loan?
The process is a very simple one when guided by a trained professional. An experienced mortgage broker can not only walk you through the steps, but he or she can help you to find the institution that is best for you personally.
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