Each time you contribute to paying off your mortgage, the equity in your home continues to add up, meaning you technically own increasingly more of your house over time.
The best way to figure out the amount of equity in your home is to determine your home’s current market value, and then subtract the amount you owe on your mortgage. So, if, for example, you have a home worth $550,000 and have $250,000 remaining on the mortgage, your equity would be $300,000. It is important to grasp how home equity works to understand how to utilize this equity to your advantage.
One of the main ways to benefit from considerable equity in your home is to take out a home equity loan, which is also often referred to as a second mortgage.
With a home equity loan, it is possible to cash out 80% to 85% of the equity you have in your house, thus receiving a lump sum. This is a fixed rate loan that uses your house as collateral, and generally requires that you pay it back over a period of 5, 10, or 15 years.
How to Plan for the Future by Using Your Home Equity Loan as a Retirement Income Source
There are a number of different ways that a home equity loan can be used, such as to consolidate debt, pay for another property or for renovations to an existing property, or pay for your children’s university education.
However, another way to leverage a home equity loan for your benefit is by utilizing it to improve your financial security in retirement. After you retire and your main source of income no longer exists, it is crucial to be fully prepared financially to continue living comfortably without running out of money. One potential way to do that is by accessing the equity in your home through a home equity loan.
Everyone takes a different approach when preparing for retirement. Although consistently putting away money throughout your career to build up your savings and benefit from compound interest will definitely give you an advantage, not everyone can take this approach.
In fact, many people struggle to save any money at all, or they burn through their savings before reaching retirement due to unforeseen expenses. Fortunately for homeowners in such a predicament, this shortfall can be rectified with a home equity loan.
Other Ways to Access Home Equity in Retirement
If you have examined the numbers or have spoken to a financial advisor about your situation, and they have helped you to see that your income after retirement will not be sufficient, then it is a good idea to start looking into ways to access your home equity.
Aside from a home equity loan, there are other approaches you can take to tap into your home equity for retirement. The method that is best suited for you will depend on the specifics of your situation. The following are some of the other potentially viable options that you may have:
A Home Equity Line of Credit
Another way that you can utilize your home equity to stabilize your finances after retiring is by taking out a home equity line of credit (HELOC). This will provide you with a line of credit that you can tap into whenever you need, rather than a lump sum payment.
Most of the time, you can continue to draw from this line of credit for a defined “draw period,” which usually lasts about 10 years. As well, you do not have to pay back any of the money that you borrow until after this period has ended.
Generally, HELOCs are variable rate loans. This means that the interest you will be charged on the portions of the line of credit you use will be determined by the movement of the underlying benchmark index that your lender uses.
Although a HELOC is especially worth considering if you have a big expense or costs that suddenly arise in your retirement (and you want more flexibility), if you have planned expenses in your future, such as a home renovation, it may make more sense to choose a home equity loan.
A Reverse Mortgage
While reverse mortgages received a bad reputation in the past as a carefree or risky way to access cash, the market for this type of loan is different these days. As rules and regulations have been set in place, this has become yet another good method for generating income in retirement.
This loan also involves borrowing money in such a manner that uses your home as collateral. However, rather than making monthly repayments, interest and fees continue to add on every month, and the loan must be repaid when you no longer live in the home.
Since there are many specific requirements and details that pertain to a reverse mortgage, it is a good idea to speak to a financial planner about the particulars of what you must and must not do before taking this route to access your home equity.
How Canadalend Can Help You Secure a Home Equity Loan
If you would like to protect your financial well-being in retirement and you are interested in accessing your home equity in Ontario to make that possible, Canadalend would be happy to help you in this potentially confusing and complicated process.
We understand the importance of having financial security, and we fully grasp the ins and outs of accessing home equity to establish such security. Thus, it is our goal to aid our clients throughout this process in order to provide them with everything they need.
Unlike the big banks, we do not fuss over matters such as your citizenship, credit history, or income level, as all we are focused on is your home value and your outstanding loans.
We can simplify the process of accessing the equity in your home that you deserve to receive so that you can get your finances in promptly and without unnecessary delays.
Our experienced in-house team can provide as much help as needed if you are uncertain about what direction to take in order to tap into your home equity, and will base our guidance on the specifics of your personal circumstances.
We can help you secure a number of different loan types, including a home equity loan, a HELOC, or a reverse mortgage.
For more information about how we can help you access your home equity in Ontario, or to learn more about the various other types of loans that we are equipped to assist you with, call Canadalend at 1-844-586-0713 or contact us here.
