A home equity loan in simple terms is when you borrow an amount of money that is part of the marketable value of your property. This is secured against the home itself which provides lower interest rates and flexible repayment terms.
What is not so simple today is the form that a home equity loan may take. From a HELOC (home equity line of credit) to a Gold Visa there are many forms with different advantages. The type of loan will generally depend on what you are utilizing the money for and it is important to understand the differences.
Simple Equity Loan for Barrie Resident
This is a scenario where based on your income and credit situation, you would pursue a one time equity withdrawal from your home’s value for a specific purpose for example – purchasing a vehicle. The loan will be amortized with a set repayment schedule that will result in a low monthly payment with a defined future date where the loan is paid off. In most cases this will be registered as a separate mortgage however there are many cases where after analyzing the cash savings that it would be advantageous to refinance an existing mortgage and add the equity loan into one new mortgage.
Sheila was running her old junker back and forth to work knowing the vehicle was on its last legs. She had inquired with a number of used car dealers about a loan but the payment shown made her think she would have to get a second job to pay for it. She was looking at another $500 repair bill when her mechanic suggested she speak with his Barrie mortgage broker. When Sheila approached me I quickly assessed an opportunity for a simple equity loan to meet her need. Her current mortgage was maturing in the next month and she had the equity available to borrow enough to pay for a gently used vehicle. The most exciting part was the new first mortgage I found her had a lower rate than the prior so her new payment actually covered the equity borrowed to buy the car outright! Needless to say Sheila was in the driver’s seat once more feeling confident about her future.
Home Equity Line of Credit
A HELOC is a loan that has many purposes. From high interest debt consolidation to investment purposes, the flexibility and low interest rates makes this a good tool for a financially responsible individual. I differentiate a traditional HELOC from a Collateral Charge Mortgage as there is a significant potential downside to this loan structure.
This loan is registered and secured against your property’s value and functions as a revolving line of credit where each month you will either spend and increase the amount you owe or pay down and decrease. These loans can be interest only monthly payments or have a minimum balance due depending on the loan contract resulting in cost effective borrowing. The downside is the interest rate is usually floating meaning if interest rates rise then so does the cost of borrowing on the amount you owe. Additionally, if you decide to carry a large balance, beware that as a line of credit, the account reports to your credit bureau resulting in potential damage to your rating.
Gold Visa Card
There is a third option here and one that should not be overlooked. The secured Gold Visa card is a viable option especially for those looking to consolidate high interest debt while working to re-establish their credit rating. This loan can be placed behind your existing mortgage against the equity in the property and is registered as a revolving credit line with preferred interest rates as it is secured against your home’s value. One advantage here is the approval process is streamlined making it an attractive option for those needing funds quickly.
There are so many reasons to consider a home equity loan. Home renovation projects, buying a cottage or second home, going back to school, starting a business, investment purposes, and even debt consolidation are some of the main ones. From simple equity loans to the Gold Visa, there is an equity loan for you. I am here to assist you in determining which loan structure is most beneficial to your situation and as always I am here to answer your Barrie mortgage questions.