Access Your Home Equity
Jen & Cory • January 19, 2021
If you've been a homeowner for many years, chances are, your property value has increased significantly. One advantage of homeownership is the opportunity to build equity. Home equity growth, partnered with the security of living in your own home, is why most Canadians believe homeownership is the best choice for them!
For most Canadians, their home equity is their greatest asset, but accessing home equity is often overlooked when putting together a comprehensive financial plan. And although COVID-19 has caused some grief in the economy of late, house prices have remained stable or increased in value through 2020.
Simply put, home equity is the actual market value of your property minus what you owe. For instance, if your home has a market value of $650k and you owe $150k, you have $500k in home equity.
Now, if you aren't interested in selling your home but you'd like to be able to access the equity you have built up over the years, for whatever reason, you've come to the right place. Here are four options for you to consider.
Conventional Mortgage Refinance
Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance.
So let’s say your property is worth $500k and you owe $300k on your existing mortgage; if you were to refinance up to 80%, you would qualify to borrow $400k, so after paying out your first mortgage of $300k, you’d end up with $100k (minus any fees to break your mortgage) to spend however you like. Even if you paid off your mortgage years ago and you own your property with a clear title (no mortgage), you can secure a new mortgage to your property.
With the impact of COVID-19 on our economy, interest rates are historically low right now. It never hurts to take a look at your options.
Reverse Mortgage
A reverse mortgage allows Canadian homeowners 55 or older to turn the equity in their home into tax-free cash. There is no income or credit verification, you maintain ownership of your home, and you aren't required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell.
Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, a lesser amount of equity can be accessed depending on your age.
The interest rates here can be slightly higher than the best rates currently being offered through standard mortgage financing. However, the interest rates on reverse mortgages aren’t outrageous; rather, they reflect the relaxed qualification guidelines.
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit allows you to set up access to the equity you have in your home, but you only pay interest if you use it. Qualifying for a HELOC can be challenging as lender criteria can be pretty strict. Unlike a conventional mortgage, a HELOC doesn't usually have an amortization, so you're only required to make the interest payments on the amount you've borrowed.
Second Position Mortgage
If the cost to break your mortgage is really high, but you need access to cash before your existing mortgage renews, consider a second mortgage.
A second mortgage typically has a set amount of time you have to repay the loan (term) as well as a fixed interest rate (usually higher than conventional financing). After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it's paid off.
If you’re looking for a way to access the equity in your home to free up some cash to spend however you like, please contact us anytime. You’ve got options and we would love to work through all those options with you.
Recent Posts
Cashback Mortgages: Are They Worth It? Here’s What You Need to Know If you’ve been exploring mortgage options and come across the term cashback mortgage , you might be wondering what exactly it means—and whether it’s a smart move. Let’s break it down in simple terms. What Is a Cashback Mortgage? A cashback mortgage is just like a regular mortgage—but with one extra feature: you receive a lump sum of cash when the mortgage closes . This cash is typically: A fixed amount , or A percentage of the total mortgage , usually between 1% and 7% , depending on your mortgage term and lender. The money is tax-free and paid directly to you on closing day. What Can You Use the Cashback For? There are no restrictions on how you use the funds. Here are some common uses: Covering closing costs Buying new furniture Renovations or home upgrades Paying off high-interest debt Boosting your cashflow during a tight transition Whether it’s to help you settle in or catch up financially, cashback can offer a helpful buffer— but it comes at a cost . The True Cost of a Cashback Mortgage Here’s the part many people overlook: cashback mortgages come with higher interest rates than standard mortgages. Why? Because the lender is essentially advancing you a small loan upfront—and they’re going to make that money back (and then some) through your mortgage payments. So while the upfront cash feels like a bonus, you’ll pay more in interest over time to have that convenience. Breaking Down the Numbers It’s hard to give a blanket answer about how much more you’ll pay since it depends on: Your interest rate The cashback amount The mortgage term Your payment schedule This is why it’s important to run the numbers with a mortgage professional who can help you compare this option with others based on your personal financial situation. Are You Eligible for a Cashback Mortgage? Not everyone qualifies. Cashback mortgages generally come with stricter requirements . Lenders often want to see: Excellent credit history Strong, stable income Low debt-to-income ratio If your mortgage file includes anything “outside the box”—like being self-employed or recently changing jobs—qualifying for a cashback mortgage might be tough. What If You Need to Break the Mortgage? This is one of the biggest risks with cashback mortgages. If your circumstances change and you need to break your mortgage early, you could be on the hook for: Paying back some or all of the cashback you received, and A prepayment penalty (typically the interest rate differential or 3 months’ interest—whichever is higher) That can be a very expensive combination. So if there’s even a chance you might need to sell, refinance, or move before your term is up, a cashback mortgage might not be the best fit. Should You Consider a Cashback Mortgage? Maybe—but only with eyes wide open. Cashback mortgages can be helpful in the right scenario, but they’re not free money. They’re a lending tool that benefits the lender , and the key is knowing exactly what you’re agreeing to. Final Thoughts: Talk to an Expert First Choosing the right mortgage isn’t just about the lowest rate or the biggest perk—it’s about making a choice that fits your whole financial picture. If you’re considering a cashback mortgage, or just want to explore all your options, let’s talk. As an independent mortgage professional , I can help you weigh the pros and cons of various products, so you can make a confident, informed decision. Have questions? I’d be happy to help—reach out anytime.
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. For anyone watching the mortgage market — whether you're renewing, purchasing, or simply keeping an eye on borrowing costs — here's a breakdown of what was announced and what it may mean for you.
