by Integrum Mortgage
Equity Based Mortgages
What is an Equity Based Mortgage?
Equity Based Mortgages allow borrowers to use some of their existing equity as collateral for the loan. This type of loan is beneficial to those who have built up equity in their home and are looking for a way to access it.
The borrower can choose to make larger payments as they pay down the loan, which will reduce the interest rate. Equity based mortgages also allow borrowers to tap into some of their existing equity and put it towards other investment properties.
This can provide the borrower with additional income and create a source of retirement savings. Equity based mortgages are typically offered to those who have been in their homes for at least five years and have built up equity over that time.
Who is an Equity Based Mortgage For?
Equity based mortgages are ideal for those who have established equity in their current home. This type of loan is especially attractive to those looking to access their existing equity and put it towards an investment property. It is also an attractive mortgage option for individuals with poor credit. But with an equity based mortgage, it can help them access the funds they need.
Advantages of an Equity Based Mortgage
- The primary advantage of an equity based mortgage is that it allows borrowers to access their existing home equity and use it towards other investments. Additionally, these types of loans typically have lower interest rates and shorter terms. This can help borrowers to pay off their loan faster and build up equity more quickly than other types of mortgages.
- Additionally, Equity based mortgages are often easier to qualify for due to the fact that the borrower is using existing equity as collateral. This reduces the risk for lenders and allows them to offer more competitive terms.
- Finally, Equity based mortgages allow borrowers to pay down their loan more quickly and access the funds they need to make additional investments. This can provide an excellent source of retirement savings and income.
Disadvantages of an Equity Based Mortgage
- The primary disadvantage of an equity based mortgage is that it requires a greater commitment from the borrower. With a traditional mortgage, the lender is responsible for ensuring that payments are made on time and in full.
- With an equity based loan, the borrower must be prepared to make larger payments or pay off the loan more quickly than with other types of mortgages. Additionally, if the market value of the home decreases, the borrower could be at risk of losing the equity that was used for collateral.
What are some of the requirements for an equity based mortgage.
In order to qualify for an equity based mortgage, borrowers must typically have at least 5 years of home ownership and significant amount of equity in the property. Additionally, lenders may also require that the borrower have a good credit score and a steady income.
Furthermore, some lenders may require borrowers to provide proof of liquid assets such as savings or investments in order to demonstrate that they have the ability to make payments on time. Borrowers may also need to provide documentation of other debts such as car loans or credit cards.
Finally, most lenders will require a home appraisal so that they can determine the current fair market value of the property and ensure that there is enough equity to secure the loan.
Overall, an equity based mortgage can be a great way for borrowers to access their existing home equity and use it towards other investments or retirement savings.
Here are some of the requirements that lenders usually look at when apply for an equity based mortgage:
- Minimum of 25% down payment
- Quality of the home you are looking to purchase for marketability
- Savings statements to show some assets and possible properties that you currently own
- When using Equity in your current home, there has to me at least 30% equity of the homes value.
- have a minimum of 5 years home ownership
Using a home equity loan for the equity based mortgage
Using a home equity loan for a mortgage could be a great way and is essentially an equity based mortgage if using the home’s equity for another mortgage. Typically the interest rate is lower than traditional personal loans however this type of loan can be used for many other things such as, Consolidating debt, using the money for home renovations, paying for education costs and a lot more.
What is required:
- Proof of steady income
- Decent credit score
- Proof of other debts such as car loans or existing credit cards
- A home appraisal to assess the current market value of the property
- Liquid assets such as savings accounts or investments to demonstrate borrower’s ability to make payments on time.
How does a home equity loan work?
Equity of the property is used to secure the loan from a lender and borrowers can access up to 85% of their equity value as a lump sum. This money can then be used for things like debt consolidation, home renovations etc. and must be paid back to the lender within the term of the loan. Interest rates on home equity loans are usually lower than traditional personal loans and they often offer tax deductions on the interest paid.
Typically homeowners can obtain up to 85% of home appraisals on a combined loan-to-value ratio. The value of the loan and interest rate are also dependent upon the borrower’s credit history. Traditional home loan terms and repayment terms are similar in nature.
Another options is to refinance your property for secure another mortgage
Refinancing my home to purchase another property
This is another way to access the equity in your current home. This means taking out a new loan to pay off old loans and debts, often at a lower interest rate. As part of this process you may also be able to access some of your existing home’s equity which can then be used as the down payment on a second property.
If you have an existing mortgage on a property that is almost paid off and would like to extend your equity to another property. Refinancing is another option as similar to a home equity line. This service is usually given from mortgage brokers across Canada. You can refinance your current property and pull out up to 80% of your homes equity as well change your interest rates from a fixed interest rate to variable rates and vise versa.
Another advantage of mortgage refinancing is that you can use the equity in your home to pay down high interest debt by consolidating, potentially lowering your mortgage rate and putting together multiple payments into one monthly mortgage payment.
An equity based mortgage is a great option for those looking to access their existing home equity and use it towards other investment properties. However, there are several requirements that must be met in order to qualify for an equity based mortgage, including having at least 25% down payment and proof of steady income and assets. Homeowners can also consider options such as refinancing their existing home or taking out a home equity loan to access their equity. Ultimately, it is important to thoroughly research the different mortgage options available before committing to one in order to make sure you are getting the best possible deal.
It is also important to speak with a qualified professional such as an Integrum mortgage broker in order to understand the implications of each option. Integrum Mortgage Brokers work with over 20 lenders that are dedicated in finding you the best possible mortgage solutions available. With our careful planning and experience, homeowners can find the right equity based mortgage for their specific needs and goals.
Overall, a home equity loan or refinancing an existing mortgage to access your homes equity is an attractive option for those who need immediate cash flow or to unlock their existing assets in order to purchase another property.
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