An equity take out on your home can be a life saver in times of financial distress, especially if used effectively. In most cases, an equity take out is the only OR cheapest option. Taking out equity from your home isn’t free, nor is it cheap, but it’s probably one of the safest and quickest ways to get access to funds for an endless amount of reasons. The most common reasons for the need of an equity take out are:
- Clearing CRA tax arrears, paying off a consumer proposal, consolidating high interest credit cards/unsecured debt, bringing a mortgage/property taxes back into good standing, being laid off work, home renovations, purchasing an automobile, gifting the money to family/children, clearing judgements/liens, supporting a business, unexpected healthcare costs, investment purchase, etc.
The reasons are really endless, but each reason is legitimate and the lenders will not discriminate. Usually in times of need, your bank isn’t as sympathetic as you’d hope for. It seems easy enough to get money when you don’t need it, but impossible to get money when you do need it. Though the equity take out is like borrowing money, its money that you’re entitled to from your home appreciation in addition to having paid down your mortgage principal over many years. An equity take out can take one of many forms: first mortgage, second mortgage (private), home equity line of credit, step mortgage, etc.
In most cases, an equity take out is allowed to up to 85% of your home’s value (90% in rare cases). The money can either be advanced entirely to you, or disbursed by the lawyer to the debt or arrears you are looking to clear up (if applicable). This is dependent on which institution/lender is providing the equity take out.
Here are a few requirements which will help determine if an equity take out is right or even possible for you:
- Does the amount of money you’re requesting + the owing balance on your existing mortgage/mortgages exceed 85% loan-to-value? If not, great.
- Are you currently employed/self-employed or have any other sources of income that will service this new liability?
- Can you afford to make extra payments on the equity take out, in addition to the mortgage payments you’re already obligated to make?
- Will the money you’re requesting be sufficient enough to resolve the issue you’re looking to fix?
- Do you have an exit strategy to eventually pay off or consolidate this equity take out?
Don’t worry, these questions are very vague and general, but we’ll work with your situation to find a solution. In most cases, requests for an equity take out are treated on a case by case basis as each deal is different in its own ways, whether it’s the severity of financial distress, intended end use of the money, timeline or exit strategy. Depending on the type of equity take out (ex. Second mortgage (private)), the loan is flexible enough to be changes in way that might make it easier for you to carry.