When a homeowner pays off their mortgage over time, they continue to accumulate equity in their house. The more you pay off your mortgage, the more equity you build up in your home for potential use.
If the value of your home rises in response to the changing housing market, your equity will grow as well.
Many homeowners decide to use their equity to fund a major purchase. The cost could be anything from a major addition to their home to paying off their current car loan or paying for their children’s education. They’ll use their equity to pay down whatever the expense is.
Anyone will benefit greatly from home equity. Unfortunately, many people remain oblivious to what home equity is, and how to borrow using your home equity.
The sum of personal equity (or wealth) you have in your home is referred to as your home equity. Home equity is calculated by taking the current market value of your home and subtracting any debt you have against it, such as an outstanding mortgage. Your home equity is equivalent to the entire market value of your home if you don’t have any debt against it.
Home equity is a valuable measure of your wealth distribution, but it’s most commonly used when borrowing capital. A home equity loan, such as a second mortgage or a home equity line of credit (HELOC), may be used to borrow using your home equity.
In Canada, one of the most common uses of home equity is as collateral for a home equity loan. A home equity loan is a type of loan in which you borrow money against the value of your home. Home equity loans are often used to finance major, one-time expenditures.
Home equity loans, unlike unsecured loans, require the lender to place a lien on your property. This means that if you can’t pay the bills, your lender will be entitled to take a percentage of the proceeds from the selling of your house to cover the debt.
The maximum size of a home equity loan is usually set as a percentage of your home’s appraised value. Depending on the type of home equity loan you have, the exact amount can vary.
Home equity is just one indicator of where you keep your money. It’s a crucial indicator because it reveals hidden value hidden inside your home. When you need to borrow money to make a large investment, your home equity is one of the most valuable assets you have. In today’s financial planning, knowing what home equity is and what choices you have for borrowing against it are critical.
If debt is a burden, we’re here to lighten your load. With a Freedom Capital Equity takeout, you get some breathing room to make it through the twists and turns in life. Freedom Capital is Canada’s only brokerage that focuses on alternative financing. When the bank says no, Freedom Capital has your back.