If you have a mortgage but still need money, you can use your home equity to get the money you need.
When you receive your first mortgage, your loan is secured by a portion of the value of your home (95% at most). This means that your lender indirectly owns a 95% interest in the property you have purchased. As you repay your mortgage, the value of your home increases. This means that you can withdraw another loan on the portion of the home equity that belongs to you. This would mean that you will pay two loans instead of one.
In which situations should I opt for a home equity loan?
If you need money for …
– Home renovations
– Home extensions or upgrades
– A new vehicle
– Cover tuition fees for your children
– For Your Business
So this type of loan is ideal for you. In short, if you need a large amount of money for any reason, you can get it by opting for a home equity loan.
What types of home equity loans are available to me?
The two most popular forms for obtaining financing from home equity are home equity lines of credit and second mortgages.
Home equity lines of credit work much like credit cards. If you have, for example, a credit limit of $ 30,000, you can borrow the amount you want. If you pay back what you owe, you can borrow on your margin for the duration of your loan. Basically, as long as the credit is available, you have the option to use it until the end of your term.
It’s a little different when it comes to a second mortgage. To summarize what this type of loan includes … a second mortgage is a loan obtained against your home while a first mortgage is already in place. As a second mortgage is also second in priority in case of default, it often comes with higher rates than those of its counterparts.
Can not I just use my credit card?
You can certainly use it if both your credit rating and your credit limit are high enough. But we strongly advise you not to do it.
Credit cards have ridiculously high-interest rates compared to mortgages and home equity loans. Today, you can get a mortgage with a 5-year term for 2.99%. An annual credit card rate can exceed 20%. This is obvious!
Can I refinance, instead?
You can certainly refinance your mortgage, and since mortgage rates are very low nowadays, this is definitely not a bad idea. There may be costs associated with breaking your current mortgage, but these costs are often offset by the long-term savings that you could possibly benefit from.
In conclusion, in order to get the money you need, you can opt for a home equity line of credit, a second mortgage or refinancing your current mortgage.