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For those considering a home equity mortgage and are new to its potential benefits, the best course of action is to speak with an experienced, trusted professional. Knowing exactly what questions to ask is important so that you can get the answers you need and make an informed decision.

Is my Reason for Applying for a Home Equity Mortgage a good one?

The first thing you want to do is disclose why you are considering a home equity mortgage. An honest mortgage professional will tell you whether this type of loan is appropriate for your needs. For instance, if you are planning to borrow against your home to pay off a credit card debt or take a cruise, they should immediately dissuade you. If you are considering this type of loan to improve your property for future real estate, then they should reassure you that that is typically an acceptable reason.

What is the Repayment Structure?

With any loan, you want to make sure you understand every aspect of it and an important aspect is how you will be expected to repay. Every loan and lender is different and while it might seem obvious, no matter how badly you need the loan this isn’t a question you want to gloss over.

Are the Terms of the Loan Negotiable?

Even if you know the interest rate and terms of your home equity loan going in, you should always ask if there’s room to negotiate. Even if the answer is no, it’s better to ask and try to walk away with more value. The goal is to enter into the best arrangement for your financial future.

Don’t be Scared to ask for the Fine Print to be Explained to you

There’s a lot of fine print with a home equity loan so take the time to peruse and ask questions before signing. Some of it will feel minute and insignificant but it can be anything but.

There’s no such thing as a dumb question and no professional will expect you to understand what it all means. The onus is on you to ask the right questions.

Timing is a tricky thing. When it comes to finances, it’s sometimes hard to know whether one should be proactive or reactive. There’s even a tendency to put things off until things have hit rock bottom or until every star has aligned.

This isn’t to say there’s a right way or a wrong way when it comes to taking on a loan or accumulating debt. These are big decisions and there’s quite a few variables to wade through.

Let’s look at some factors that should be considered when deciding if now is the right time to apply for a home equity loan.

Why do I need the Loan?

This might be the biggest question. You never want to take a loan or put your house up as collateral unless the reason is a good one. There are a ton of good reasons—medical emergency, business opportunity, home renovations.

If the reason feels legitimate then the timing is probably legitimate as well.

Will I get the Best Interest Rate and Repayment Plan?

It’s a simple question: will you get the best deal when you apply? If you believe that there’s a better interest rate around the corner or that you can improve your credit score, then the best advice might be too wait.

Timing isn’t just about what’s happening in your life. It’s also about what’s happening with the lender and if you can secure the best deal.

What if my Situation Changes?

If you need the money today but believe that your situation can change, then it still might make sense to borrow money against your home. In this case, the solution might be a home equity line of credit where the funds will be available to you. Like any line of credit, you only must pay back what you use so if your situation changes then no harm done.

Applying for loans is a big deal and the timing must be right. Be honest with your situation and logical and, most importantly, speak with a professional who can help guide you to the right decision.

It’s a lot of financial responsibility to afford and fund a home. There’s the monthly mortgage, maintenance, insurance, taxes and maybe even condo fees. It can become quite heavy so homeowners should always be looking to lower their monthly fees and the amount of interest they have to pay.

Refinancing is one of the more conventional ways of doing this. There are a few pros and cons to review when making this decision

What is Refinancing?

Basically, this means applying for your loan all over again and hoping to be declared a stronger and safer applicant. With this will come the opportunity to negotiate better terms and can save you some money in both the short and long term.

Pro: Saving Money

This is a big one and is usually the main reason that people refinance their mortgage. As you improve your credit score, grow your career and achieve more of your earning potential, you could be viewed as a strong applicant by a lender. If this is the case then refinancing is worth considering.

Con: You Might have to Sacrifice Certain Aspects of your Mortgage

When going into a refinancing arrangement, it’s important to recognize that you might not walk away with a better deal in every way. You could move from a fixed-rate to an adjustable rate and end up with a higher interest rate. You could decrease the equity in your home. There could even be fees and penalties.

Pro: Access to Funds and Consolidation

Refinancing can free up more of your money for debt repayment or it can open more funds for you to consolidate all your debt. These funds can be used in any way you want including home renovations, travel, retirement or to pursue business ventures.  

When it comes to refinancing remember that you’re a customer. Lenders want your business and to see you in a good financial situation that benefits both them and you. To achieve this, they are often open to refinancing if the new financing deal is realistic.

Private mortgages are a valuable but under-utilized option for mortgage applicants. It’s especially useful for those who might not have the strongest application or want a little more flexibility that can come with working with a bank or traditional lender.

Strict Lending Rules Means that Alternative Options are Necessary

As more regulations are imposed on potential homeowners, there’s going to be a big pool of people who will have trouble qualifying. A portion of this pool won’t have access to a guarantor or be able to pay a higher interest rate.

The rules imposed by the Federal Government in October 2016 is a prime example of how private mortgages can fit into the business of lending and provide an intriguing option for many people.

How do I Apply for a Private Mortgage?

You can research, approach and meet with private lenders the same way you would with traditional. This is not a shady business but is out in the open and can be discovered through word of mouth or by searching the internet.

Each will have their own stipulations and regulations so it makes sense to shop around.

The Pros of a Private Mortgage

Not every applicant has a full-time job, T4, big down payment and strong credit rating. The big banks typically balk at borrowers who don’t check off enough boxes.

Financing through a private mortgage is a distinct alternative for someone (or a group of people) who fall into any of the following:

• Self-employed
• Foreign investors
• Applicants who are rebuilding their credit
• Applicants who owe taxes that are in arrears
• Anyone looking to flip a property
• Looking for equity for other ventures like starting a business

The Cons of a Private Mortgage

With this type of arrangement, the property matters as much as the applicant. You could be rejected if the property or location are not appealing to the lender.

There are always fees associated with working with private lenders whereas with traditional lenders, the banks typically pay the broker. It can be as low as 1% or as high as 5% so it’s best to ask each lender you are negotiating with.

If you’re having difficulty getting approved by traditional lenders than a private mortgage is worth reviewing. There are a ton of benefits using a private mortgage and it’s a proven way to get into the market.