So, you are looking to purchase a second property! Congratulations! This is an incredible opportunity and we are here to help provide you with the keys to success to expand your financial portfolio and ensure stability for the future.
Before you launch into this purchase there are a few things you should know, such as how to purchase a second property by tapping into existing home equity, the differences in requirements for vacation vs. rental or investment properties and who can qualify.
In the case of purchasing a secondary property, most lenders will allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. Before jumping in, it is important to understand the different financing options to determine which route best suits your circumstances and property goals.
One option for tapping into your home equity for the purpose of purchasing a secondary property, is to refinance your mortgage. Essentially, mortgage refinancing means getting a reevaluation on your home and then redoing your mortgage based on the current value. This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property. Keep in mind, when using some of your current equity, it will increase the principal amount and the interest payments on your mortgage as the mortgage is now refinanced at a higher amount.
There is a second option to unlock your home equity, which is through a line of credit or a HELOC, which stands for “Home Equity Line of Credit”. This option allows you to borrow money using the equity in your property, with the property as collateral.
A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. HELOC payments are unique as they are interest only payments versus regular mortgages, which have both Principal Interest and Tax added on. Another benefit to utilizing a HELOC is that you will only pay interest on the amount you actually use! This can provide financial breathing room, especially during tight months. That said, if you do choose to pay the interest as well as a portion towards the principle, it can help you pay off the loan much faster.
You can utilize a HELOC by tying it to your existing mortgage or applying for it separately.
In Canada, you are able to borrow up to 65% of your home’s value using this method. However, keep in mind, your HELOC balance AND current outstanding mortgage cannot exceed 80% of your home’s value when added together.
Connect with me today if you want more information about the mortgage process.