Refinance or HELOC?

Refinance or HELOC?

Refinancing or getting a HELOC is a great way to access your equity. That cash is available for you to access even if you are still paying a mortgage payment.

There are a couple of ways you can access the built-up equity and I will explain these options in detail below.

How to access the equity in your home?

If you are considering accessing the equity in your home, here are two of the most common to choose from:

* Refinance your mortgage to access the equity
* Home Equity Line of Credit

1. Refinancing your mortgage

Refinancing your mortgage involves breaking your current mortgage and setting up a new one. You will incur a penalty for breaking your existing mortgage but it will allow you to access extra cash available after paying out the current mortgage. If the interest rate is competitive, it may be beneficial to do this.

2. Obtain a home equity line of credit (HELOC)

A home equity line of credit a revolving line of credit attached to your home. It allows you to draw out cash when you need it. This would need to be in place upfront otherwise you would need to refinance your existing mortgage to set one up.

The benefits of a HELOC is you only pay interest on the money drawn when you need it. If it is set up and not used, you don’t pay anything to have it available to you.

With either option above, you can only access equity up to 80% of the properties appraised value. This new mortgage amount has to payout the existing mortgage balance you have and the difference would be available for access.

See example below:
Your properties appraised value: $400,000
Current outstanding balance: $275,000

When refinancing you can set up a new mortgage of $320,000. That is $400,000 X 80% = $320,000

This new mortgage of $320,000 pays out the existing mortgage of $275,000 giving you access to $45,000 in equity.

There are a few options to complete this, by refinancing you would just set up a new mortgage to 80% of the homes appraised value, the lawyer would register the new mortgage on your title and you would have a lump sum cash payout of $45,000. You have one mortgage payment at either a fixed interest rate of a variable interest rate, whichever you choose.

* It’s important to note that the HELOC amount cannot exceed 65% of the home’s value

There are many ways you can set these options up, you can have a fixed portion and a HELOC, a variable portion and a HELOC. The amounts can vary as long as the home equity line of credit is not more than 65% of the appraised value.

When it comes to home equity, there are a lot of options available, and each is right for a particular person at a particular time. Picking the right option for you could save you thousands in interest and fees. Our trusted mortgage broker can explain these options in detail and show you the costs associated with both so you have a complete understanding and how payments work when it is all complete.