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Purchasing your first home is one of the most important investments you’re likely to make. Like any substantial investment, there are a number of benefits you accrue.

Aside from the stability and comfort afforded by being a homeowner, owning your home also allows you to build equity over time. You can use this equity as collateral to purchase another property or even borrow against it in the future.

This article will break down the different types of loans to help you decide which is right for you.

Why do people take out second mortgages?

Homeowners borrow against their home equity for various reasons. Some of the most common reasons include needing to borrow money to pay for major home renovations or expenses like school, vacations or weddings.

While a traditional mortgage requires a substantial down payment to act as collateral, with a second mortgage, you’re using your home as collateral.

The most common ways of borrowing against your home equity are through a home equity loan or second mortgage or by opening a home equity line of credit.

Common Methods of Accessing Home Equity

A home equity loan is different from a traditional mortgage. As mentioned, when prospective buyers apply for their initial mortgage, they’ll need to offer collateral to the bank or lenders.

However, when applying for a home equity loan, they use the equity they’ve built in their home for collateral. While this can be referred to as either a home equity loan or a second mortgage, they effectively mean the same thing: a loan has been taken out against your home’s equity.

While a home equity loan and a second mortgage refer to the same thing, there is another option commonly considered by homeowners looking to access home equity: a home equity line of credit.

There are benefits and drawbacks to both methods, and to choose which one to pursue, you’ll need to evaluate your individual situation and determine which makes the most sense for you.

Home Equity Loan/Second Mortgage

A home equity loan is a lump sum loan that uses your home as collateral. The loan amount is based on the equity you have in your home, which is the difference between the appraised value of your property and the outstanding balance of your mortgage.

Home equity loans typically have a fixed interest rate, meaning that the payments stay the same throughout the life of the loan.

Pros:

• Home equity loans can be easier to qualify for than other types of loans because your home is used as collateral.
• The interest rate on a home equity loan is usually fixed, so you know exactly how much you will need to pay each month.
• Home equity loans can offer lower interest rates than other types of loans, such as personal loans or credit cards.

Cons:

• Home equity loans are secured by your home, so if you default on the loan, you could lose your home.
• The interest rate on a home equity loan may be higher than the interest rate on your mortgage, depending on the market conditions at the time you take out the loan.

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit that uses your home as collateral. You can borrow up to a certain limit and make payments as you go, much like a credit card. The interest rate on a HELOC is usually variable, which means it can go up or down over time.

Pros:

• HELOCs can offer a lower interest rate than other types of loans, such as credit cards.
• You only need to make payments on the amount of money you borrow, so it can be easier to budget for your monthly payments.

Cons:

• The interest rate on a HELOC is variable, which means it can go up or down over time. This makes it difficult to budget for your monthly payments.
• Like a second mortgage, HELOCs are secured by your home, which also puts your home in jeopardy if you fail to make payments.

Comparing HELOCs and Home Equity Loans

There are several key differences between home equity loans and second mortgages. Here are three to help you compare both:

1. Home equity loans have fixed interest rates, while HELOCs have variable rates.
2. With a home equity loan, you receive the entire lump sum all at once. With a line of credit, you can choose when to access the money and how much you use each time.
3. You can typically borrow more money with HELOC than with a home equity loan.

What to Consider When Choosing Between a Home Equity Loan and a HELOC

The type of loan that is right for you will depend on a number of factors, including your financial situation, your plans for the money, and how much equity you have in your home.

If you need a large sum of finances all at once and you have good credit, a home equity loan may be the best option. The interest rate on a home equity loan is usually lower than that of a personal loan or another type of unsecured loan.

However, if you want more flexibility in order to make monthly payments or only need to borrow a small amount of money, a HELOC may be the best choice. With this method, you only pay interest on the money that you borrowed, making it easier to manage your monthly payments.

No matter which type of loan you choose, it is important to investigate and shop around and compare interest rates before borrowing.

The Importance of Finding the Right Lender

Whether you are looking to obtain home equity or a second mortgage, choosing the right lender is essential to getting the best deal possible.

At Canadalend, we are dedicated to helping you find the best possible loan for your needs. We have a team of experienced mortgage brokers who will work with you to find the right loan and get you the best rate possible.
For more information on home equity loans and second mortgages, call one of our specialists at Canadalend today at 1-844-586-0713 or contact us online today!

With interest rates as low as they are, many homeowners are eager to take advantage of this fact by refinancing their home loans.

However, while a refinance can help to shorten your mortgage term and reduce your payments, among other benefits, there are a number of factors to consider along the way in order to be certain that you’re making the right move.

In this article, we’ll outline seven of the most common mistakes that homeowners tend to make when refinancing their home mortgage, so you can rest assured your refinance move will benefit rather than harm you.

These seven errors are as follows:

1. Failing to shop around

A large majority of borrowers will go right to the bank for their home loan or refinancing needs, or will spend very little time scanning the rates of various lenders to then simply choose the cheapest option. Many homeowners are even under the false belief that they must refinance with their current lender.

In reality, you should be carefully exploring a variety of different lender options by comparing the rates, fees, and terms offered by each. With mortgage pricing being rather complicated, it’s definitely worth taking the time to assess such factors because as little as a one-eighth difference in a percentage point can result in tens of thousands of dollars in savings over the duration of your reverse mortgage loan.

2. Placing too much focus on mortgage interest rates

An extremely common (and costly) mistake among borrowers is putting sole focus on interest rates when comparing potential mortgage lenders. In some cases, a comparatively low-interest rate from a lender will be used to conceal a loan with unconventionally high fees in other areas, resulting in the borrower paying even more than if they went with a lender with higher advertised rates.

This is why it’s important to inquire about more than just mortgage rates when weighing your options, including loan origination fees, application fees, title fees, appraisals, points, credit reports, and any other kinds of costs before you put in your application.

Additionally, be sure to pay careful attention to the prepayment terms, and read the good faith estimate document provided by your lender, which outlines all of the costs in order to ensure that refinancing will be financially worthwhile.

3. Trying to time mortgage interest rates

Just as it isn’t advised to try and time the stock market, we also don’t recommend trying to time mortgage interest rates. Waiting and hoping that interest rates will eventually drop even further is often a strategy destined for failure, as rates very well may rise again at the drop of a dime.

If you aren’t a psychic (like the rest of us), then it’s best to just lock in any low interest rate you are presented with while you can, while all other conditions are also in line with your needs.

4. Not refinancing for an affordable amount

As refinancing can be quite an expense, you’ll want to ensure that you’re doing so at the appropriate amount. If your mortgage refinancing will involve taking out some of your equity and you are refinancing for an amount greater than your current traditional mortgage balance, make sure to request an adequate amount of equity to use with the long-term in mind.

Additionally, ensure that you’ll be able to afford the increased monthly payments before setting anything in stone.

5. Refinancing too often

Many homeowners will be tempted to refinance in cases of interest rates nearing attractive lows. Unfortunately, however, refinancing will only be fiscally advantageous if you’re saving enough in interest to ultimately make up for the closing costs. This will not always be the case when you consider that closing fees of mortgage refinancing can cost as much as 3 to 6 percent of the loan balance.

These costs add up over time, especially for borrowers that refinance too often. It’s much easier to avoid these piling costs by keeping refinancing to a minimum.

6. Taking out too much home equity

It’s a common practice to use a mortgage refinance as a way to borrow against equity, using some of these funds toward things like home improvements, repairs, or even significant purchases/investments. It makes sense to do so seeing as mortgage interest generally qualifies as a tax write-off, and rates are relatively low compared to other loan types.

Taking out home equity usually only becomes a problem when borrowers take too much out, leaving themselves financially vulnerable should the housing market take a dive or other issues arise. It’s best to always err on the more conservative side when taking out home equity.

7. Extending your loan term

Extending your mortgage loan term may seem like an attractive idea, as it will go a long way in reducing your monthly payments. However, homeowners should be aware that this move will likely end up costing them more in interest fees in the long term, even in the case of re-entering at a lower mortgage rate.

The wiser approach would be to refinance into a new loan term that is shorter, or, more specifically, a term similar to the duration remaining on your current mortgage.

Start Saving Through Mortgage Refinancing Today

When it comes to headache-free mortgage refinancing in Ontario, our experts are here to lend a hand. Canadalend.com can provide you with an optimized mortgage solution that is smart and beneficial to your specific circumstances, so you can start breathing a little easier.

To learn more about our mortgage refinancing solutions and financing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.

Are you a Canadian homeowner looking to tap into the equity of your home, or benefit from lower monthly payments or rates? If so, then you may be considering either a second mortgage or a refinancing of your current mortgage.

While both of these options enable homeowners to use their property as collateral to borrow money, there are considerable differences between the two that are important and useful to understand.

In this article, we’ll compare both second mortgages and refinancing to help you determine which option may be best for your current financial situation and mortgage needs.

What is a second mortgage?

A second mortgage is a loan taken out against the equity in a home already being used as collateral for a first mortgage. Generally, the first mortgage is the primary loan that was used to purchase the house, and the second mortgage is a separate loan that is taken out on top of the first mortgage.

With that being said, second mortgages are usually offered in the form of either a home equity loan or a home equity line of credit (HELOC). However, how do the two differ?

A home equity loan is a lump sum loan that the borrower receives all at once, and is to be paid back over a certain period of time through fixed monthly payments. On the other hand, a HELOC is a revolving line of credit in which borrowers receive loan proceeds on an on-needed basis and will make payments on as they continue to borrow money. The interest rate on a HELOC is typically adjustable, meaning that it can change over time depending on the conditions of the market.

Advantages and Drawbacks of Second Mortgages

Second mortgages can be a viable option for homeowners with equity in their homes, who need to borrow a large sum of money and appreciate the security of fixed monthly payments.

Second mortgages also present several unique advantages, such as allowing borrowers to keep their current loan term without making sacrifices (e.g. keeping the low interest rates of a primary mortgage). The flexibility of choosing between a lump sum loan or HELOC serves as another attractive benefit for homeowners.

However, second mortgages have some potential drawbacks. One of the main drawbacks is that they are a second lien on the property, which means that the first mortgage lender has priority in the event that the borrower defaults on their loans. This means that if the borrower falls behind on their payments, the first mortgage lender can foreclose on the home before the second mortgage lender can.

In addition, second mortgages may have higher interest rates than first mortgages because they are considered a higher risk for lenders. This means that homeowners who take out a second mortgage may end up paying more in interest over the life of the loan, depending on their unique circumstances.

What is a refinance?

A refinance is a process in which a homeowner replaces their current mortgage with a new mortgage containing different terms. However, they are essentially taking out a new loan to pay off their existing mortgage.

Homeowners may choose to refinance their mortgages for a variety of reasons, including to lower their monthly mortgage payments and pay off their mortgage faster, obtain a lower interest rate, alter the term of the loan, switch from an adjustable-rate mortgage to a fixed-rate mortgage, or to access the equity in their homes.

Advantages and Drawbacks of Refinancing

Under the right circumstances, a mortgage refinance can help to free a homeowner of financial burdens through significant cost savings. They require borrowers to pay only single mortgage payments each month, and offer the opportunity for beneficial adjustments of mortgage terms and rates.

However, just like with a second mortgage, refinancing can also have potential drawbacks. For example, a refinance may be costly in the short term, as homeowners may need to pay higher closing costs along with other fees associated with taking out a new mortgage.

Furthermore, refinancing a mortgage may require homeowners to pay for a new home appraisal, and may also be required to accept different (and higher) interest rates.

Finally, refinancing may extend the term of a homeowner’s mortgage. This means that if a homeowner refinances their mortgage to get a lower monthly payment, they may end up paying more in interest over the life of the loan since they are technically stretching the loan out over a longer period of time.

Second Mortgage vs. Refinance: Which one is right for you?

When it comes time to decide between a second mortgage and a refinance, homeowners should consider their financial goals in both the short and long term, in addition to the specific terms of the loans being offered.

As always, it is advised to work with a trusted mortgage solution provider, such as our experts at Canadalend, to help you choose a solution that will be most financially beneficial for you.

Considering a second mortgage or refinance?

Our mortgage lenders in Ontario are here to lend a hand. Canadalend.com can help you determine whether a second mortgage or a refinance is a better option for you, so you can take the right steps toward achieving your financial goals.

To learn more about our second mortgage solutions and refinancing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.

Home equity loans, also known as second mortgages, are a popular way for homeowners to borrow money by using their homes as collateral.

Typically offered in the form of a lump sum loan or a line of credit, a home equity loan can be a great option for Canadian homeowners who need to borrow a large amount of money for a variety of reasons; whether it be for home renovations, paying for a child’s education, debt consolidation, or other purposes.

With that being said, there are many questions that homeowners may have about home equity loans. Understanding the answers to these questions can help them to make informed decisions about whether a home equity loan is the right choice.

Let’s go over some of the most frequently asked questions about home equity loans:

What is a home equity loan?

A home equity loan is a loan that is taken out against the equity in a home, which is simply the value of the home minus the amount still owed on the mortgage. For example, if a home is worth $500,000 and the mortgage balance is $250,000, then the homeowner has $250,000 in equity. Homeowners can borrow against this equity by taking out a home equity loan.

How are home equity loans provided to borrowers?

Home equity loans are generally offered as either a lump sum loan or a line of credit known as a HELOC (home equity line of credit). A lump sum loan is a one-time loan that is to be paid back over a certain period of time via fixed monthly payments. On the other hand, HELOC is a more flexible loan that allows homeowners to borrow money as needed, making necessary payments on the loan as required.

How do I know if I qualify for a home equity loan?

To qualify for a home equity loan, you must have sufficient equity in your property in addition to a good credit score. Lenders will also consider the borrower’s income, debt-to-income ratio, and employment history when evaluating their eligibility through the loan application process.

What can home equity loans be used for?

Home equity loans can be used for many different purposes, including covering the costs of home renovations or improvements, consolidating debt, paying for a child’s education, and more. However, lenders may have restrictions on how the loan proceeds can be used, so it is important to clarify this with your lender before taking out a home equity loan.

How much money can I borrow with a home equity loan?

The amount that homeowners can borrow with a home equity loan depends on several factors, including the value of their home, the amount of equity they have built up, and the lender’s unique lending guidelines. With that said, many lenders will allow homeowners to borrow up to eighty to ninety percent of the equity in their homes.

Are there risks to taking out a home equity loan?

Yes, there are potential risks associated with taking out a home equity loan. One of the main risks is the possibility of losing your home if you default on the loan and are unable to make the required payments. If you can’t make your payments and the lender forecloses on your home, you could lose your home and your equity.

This is quite a serious risk, which is why it’s critical to carefully consider whether a home equity loan is the right financial decision before you take one out (our Canadalend experts can certainly help with that).

How do home equity loans compare to other types of loans?

Home equity loans have some advantages compared to other types of loans. One key advantage of home equity loans is that they are a secured type of loan. Since these loans offer a greater level of protection to the lender, this generally results in lower interest rates for the borrower when compared to unsecured loans.

How can I calculate my home equity?

In order to estimate the amount of equity you have built in your home, simply take the market value of your property and subtract the loan amount that you owe on your current mortgage, along with any other loans secured against your home. For example, if your home is valued at $600,000 and you still owe a balance of $400,000 on your mortgage, then your home equity will be valued at $200,000.

How do I determine if I should choose a lump sum loan or a HELOC?

If you need a lump sum of money for a specific purpose, such as home renovations or debt consolidation, then a home equity loan may be the better choice. On the other hand, if you require ongoing access to funds for a variety of purposes, then a HELOC may be more suitable.

It’s also important to consider other factors, such as varying respective fees and interest rates (home equity loans typically have fixed interest rates, while HELOCs have variable interest rates that can fluctuate over time), and repayment terms (home equity loans have a fixed repayment term ranging from five to fifteen years, whereas HELOCs have a flexible repayment schedule). Ultimately, the right choice will depend on your unique financial situation and goals.

Start Using the Equity in Your Home to Your Advantage

Our mortgage lenders in Ontario have access to hundreds of different lenders and offer a wide range of mortgage solutions, such as home equity loans, that can help you finally attain the funds you have been wanting to access.

To learn more about our home equity loan solutions and mortgage financing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.