Home Equity

A Home Equity is not a stash of money that is readily when you need it.

Home Equity = Fair Market Value (FMV) - Lien
(ex: $650,000 - $250,000 = $400,000).

Two common ways to access your Home Equity:

Take a Loan From It

Home Equity is a form of virtual money. To access it, you need to qualify. You need a good income source* to get approved for a loan. Either through Refinancing or HELOC.
*A good source of income may be in the form of employment, self-employment, business income, or a qualified pension.

Sell Your Home or Property

This is a total Home Equity Take Out. To fully access your Home Equity, you must sell the house, but it may not always be the best option.

Mortgage Refinancing

A Mortgage Refinance is when a homeowner takes out a mortgage that is larger than the amount owed on their current Mortgage. This allows them to access the cash equity in their home. The mortgage amount increases, and homeowners receive any remaining money as tax-free cash. This income can be used for various things, including consolidating your big debts, taking advantage of better investment options, supplementing your retirement, etc. ... Refinancing allows you to borrow against your home equity, reduce your interest rate, and change your Mortgage before the term expires. When refinancing, you can borrow up to 80% of the value of your home. You must pass a mortgage stress test and be qualified to refinance your Mortgage. Closing costs will range $1,000 and $2,000, plus mortgage prepayment penalties.

Home Equity Line of Credit (HELOC)

Offers a more flexible alternative for refinancing if you have no use for the funds yet.

Advantages:

Allows homeowners to get a mortgage with a secured Line of Credit attached to the property
Has significantly have lower rates than Unsecured Lines of Credit
No interest costs on zero balance line of credit
Ability to access the equity as revolving funds whenever

Disadvantages:

The secured line of credit has slightly higher interest rate than a regular mortgage, the Prime plus Bank Rate. Although, setting it up like this may make sense if the client does no require the funds immediatly
Can be detrimental to homeowners if the line of credit is used on non-income generating activities or purchases

Readvanceable Mortgage

Refinancing & HELOC Combined

A Readvanceable Mortgage allows the clients to add a line of credit to the loan permitting the clients to re-borrow any part of the principal paid down. It is essentially a primary mortgage bundled with a home equity line of credit (HELOC). ... You access the total cash equity take-out of Refinancing, and HELOC starts at zero funds. HELOC funds accumulate to a maximum of 65% of the Fair Market Value (FMV) from the principal portion of your mortgage payment.

Refinance / HELOC