Many Canadians have a substantial amount of equity accumulated in their home. One of the ways to access this resource and turn into cash is to refinance your house or do equity take out. You can use the funds for any purpose like:
- Debt consolidation (most common reason)
- Investment including investing in real estate
- Education and more
On July 9th, 2012, the Government of Canada announced some very important changes to the mortgage rules that affected homeowner looking to refinance their existing mortgage. Now, Canadians can refinance up to 80% of their property’s appraised value (prior it was 85%). In other words, if your house is appraised at 400K, the maximum amount you can refinance your mortgage is 320K (or 80%). We typically hire an independent appraisal firm that will complete the full appraisal on the subject property.
If your current mortgage is below 320K, the difference between the amount of new financing and your existing mortgage, is the gross amount funds you will be able take out. If, for example, your current mortgage is 250K, then you can gross 70K from this refinance.
Refinance to Pay Out Debt
If you are considering refinancing or would just like to see if it is worth doing in your particular, please contact me and I will be happy run the numbers for you. Refinancing can be extremely advantages especially if you are doing it to pay out some of your debt (for instance, high interest credit card debt!). I can run an analysis of what your current mortgage payment plus other credit card payments cost your family budget and what you will be looking to pay for your mortgage after refinance takes place and all your other payments are gone. In most cases, it is absolutely worth doing, because your new mortgage payment will not be that much higher than your original payment but you will be able to find a new sense of freedom from the burden of other payments you had prior.
- Early pay out penalties charged by your current lender. The amount varies based on the kind of mortgage you currently have.
- Appraisal fees – approximately $300.
- Legal fees – about $600-700. The real estate legal firm will deduct this amount from the gross mortgage proceeds.
A Home Equity Line of Credit (HELOC) is a great way to refinance your home. With keeping 20% of equity you can utilize a line of credit on your home and enjoy hassle free access to additional funds.
Some of the benefits of having a line of credit are that is fully open and can be repaid at any time with no penalties. You can access additional funds up to your credit limit and use the funds for any purpose like an investment, rental property purchase, education, renovation, debt consolidation and pay interest only.
A second mortgage is a loan that a bank registers on your property behind the existing first mortgage. The main advantage of securing a second mortgage is that your first mortgage remains in place and it doesn’t need to be paid out. Though second mortgages are typically offered at a substantially higher interest rates, it could be still more advantageous to choose this route compared to possible penalties and/or mortgage insurance premiums that you might need to pay when doing equity takeout/refinance.