It’s great to have a place you can call your own! As we explored in To Rent or Own, homeownership can open up many possibilities. Beyond allowing wealth to pass down from generation to generation, owning a home can help you achieve other goals through home equity financing.
What is Home Equity?
Simply put, the equity in a home is the difference between the market value of the home and the outstanding balance on the mortgage for the home. For example, if your home is worth $1 million and you still have to pay $400,000 before your mortgage is fully paid off, then you would currently have $600,000 in home equity.
How Home Equity Builds
When some people think of homeownership, all they can envision is the burden of a mortgage. But let’s talk about the value of homeownership in terms that everyone can understand: Money! Every home has a market value i.e. a price that a buyer is willing to pay for it. That could be $1 million, $2 million or even $8 million dollars! There are a variety of factors that can impact the value of a property, including where it is located and how well it is maintained. Over time, the property can become more valuable if, for example, a major shopping centre or highway was constructed nearby or if the owner added improvements to make the home more attractive such as an updated kitchen or if the living space is increased by adding an annex. Therefore, the equity in a home, can increase if the value of the property increases.
Additionally, each time a monthly mortgage instalment is made, the outstanding balance is reduced. Therefore, home equity would gradually increase each time you make your mortgage payment.
How Home Equity can Help You
You can use home equity financing to:
- Consolidate debt from high-interest personal loans, credit cards etc
- Renovate your home –Remodel or make major improvements to your home to live more comfortably and/or increase the property value
- Pay tertiary education for you or your children
- Pay medical bills such as major surgeries not covered by insurance
- Finance any major expenses e.g. purchase another property
Here’s how it’s done:
- Get a valuation done on your home from a provider on our panel, to determine its market value
- Request information on the outstanding balance on your mortgage
- Calculate your home equity by subtracting the outstanding balance from the value your home. This is the maximum amount available to you.
- Get prequalified to determine how much you can borrow.
- Apply for an Equity Loan that does not exceed how much you qualify for or the amount of equity in your home, whichever is lower.
Learn more about how Home Equity Financing works.
