of Credit is a convenient way for your clients to tap into the cash out refinance accumulated cash out refinance
value on their property and use these funds when they need them. This is a revolving credit that allows the client to use up to 65% of the appraised value of their property.
A growing need among seniors in Canada
For seniors, living on a limited income can be difficult. In addition, unforeseen medical events and a host of other financial problems can worsen an already precarious situation. Result? In Canada, a growing number of seniors are turning to equity in their property to find some form of financial relief.
What is the net worth of a property?
The net value of your property is its actual present value minus the balance of your current loan. In other words, the equity in your property is the difference between the amount you still owe to pay off your mortgage and the fair market value of your home. For example, if the fair market value of your property is $ 300,000 and the amount owing is only $ 50,000, the equity value of your property is $ 250,000.
One of the main advantages of being a homeowner is the possibility of building a home. While you may not be able to sell this property, various types of home equity loans may allow you to access the equity in your property to meet your needs, pay for your expenses, or simply to improve your quality of life. Generally, there are three types of home equity loans available to seniors: a home equity line of credit, a second mortgage, and a reverse mortgage. Below you will find detailed explanations about them.
What is a home equity loan?
With a home equity loan, the borrower uses the equity value of his property as collateral. A home equity loan is often used to finance large expenses, such as renovations, medical care, a new car, university education for the child, or other unexpected expenses that homeowners may face. Home equity loans can only be used as a refinancing option and not as a guarantee to buy a new property.
What is a second mortgage?
In Canada, the cash out refinance in a property can be used as collateral to obtain a second mortgage for the property. The bank then issues a check for a lump sum equal to the net asset value of your property. The use you make of it is at your discretion. Usually, a second mortgage must be repaid in a given period (the term) and has a fixed interest rate. After receiving the proceeds of your loan, you must pay monthly payments on your second mortgage until it is fully repaid.
What is a home equity line of credit?
A home equity line of credit is similar to a second mortgage. However, the issuing financial institution does not remit the funds as a lump sum. You can access your money according to your needs or at a specific time for a given reason. For example, if the equity value of your property is $ 200,000 and you have a $ 125,000 line of credit, you can use these funds similar to a chaining account. You will be required to repay the interest strictly on the amount borrowed.
Here are some typical features of a home equity line of credit:
Fluctuating interest rates
Frequently, the lender will offer a low “launch rate”. However, this rate will often increase after a month or two. While a home equity line of credit may seem like the best way to access the equity in your property, its fluctuating interest rates can drastically increase your monthly repayments.
Most mortgage lines of credit come with what’s known as a financing period, which is a predetermined period of time during which you have the right to access funds available through your home cash out refinance
of credit. . This period can be five years, ten years, etc. Once the funding period has expired, you can not withdraw additional funds. Most importantly, the funding period is immediately followed by the repayment period, which is the period during which you will have to repay any money borrowed.