How to Access the Equity in Your Home
Do you owe money on your credit cards or for property taxes? Thinking of buying a new vehicle or doing some home renovations? Are today’s interest rates lower than what you are currently locked in at? Want to take advantage of lower rates and purchase a rental home or cottage?
If you answered yes to any of these questions then REFINANCING might be a good option for you. By refinancing you can “roll-in” your current debts to your mortgage by taking equity (money) out of your home to pay those debts off. Instead of paying numerous bills (credit cards, loans or lines of credit) every month, you will make one payment and take advantage of much lower interest rates.
How do you access that equity?
Recently, thanks to the Bank of Canada, refinancing rules have changed. Where we could previously refinance up to 95% of the value of your home (we call this 95% Loan-To-Value). The current maximum we can refinance to is 80% LTV. You can thank our Bank Of Canada for that here and ask them to change it back while you’re at it!
The simple calculation then is:
80% of your current home value – Mortgage Owing = Equity Available
- 1. Determine the approximate value of your home.
*Have you noticed what homes in your area are selling for?
OR you can contact a real estate agent to complete a CMA (Comparable Market Analysis) to ensure you’re comparing your home / lot size with other homes of direction comparison.
NOTE: A realtor should complete your CMA at no cost as a part of ongoing service as your realtor.
If your realtor won’t then we have trusted agents I am happy to refer that will!
2. Multiply the value of your home by 0.8 to determine 80% of the value.
Let’s use a value of $200,000 as an example.
$200G x 0.8 = $160,000 (the maximum you can refinance to).
- Subtract your current mortgage balance owing from this figure for the total amount of equity available in your home.
You can log in online to check the balance of your mortgage OR your Mortgage Broker can help confirm this figure with you.
For this example we’ll say you currently owe $100,000 on your mortgage:
So: $160G (80% Value) – $100G Mortgage = $60,000 of equity available.
This means you can take that $60,000 to pay off debts, buy a car or finally renovate the bathroom that hasn’t realized it should have died with disco.
Timing: We recommend a timeline of 2 weeks for a refinance. This will allow us time to ensure a smooth process through each stage of your financing. Extra time might be required if an appraisal is needed – more information on that in a bit.
Bank: If we keep your mortgage at the present lender and simply “blend” the new money with your existing mortgage, then there is NO FEE from the lender to break the mortgage. *It is worthwhile to do the math however as it may be advantageous if rates are lower than your present mortgage to pay some to save a LOT in the long run.(something we inherently complete for all our clients to ensure they are making the best decision).
Solicitor: A Lawyer must register the new amount of your mortgage. Cost will average $750 and comes from the proceeds of the refinance, not out of your pocket. An alternative to using a solicitor is using FCT – First Canadian Title, they will sign the final papers at your home day or evening for your convenience instead of a lawyer whose hours can be a little restricted).
Appraisal: We seek from lenders an “automated property valuation” to support the value of your home that you’ve determined. However, should the value not be supported an appraisal will be required to confirm the value. This is usually around a cost of $275 depending on the location of your property. This is required more so if there hasn’t been any registered sales near your home in the last 6 months OR if major value increase is being seen in a shorter period of time.