Cash When You Need It: The Perk of Building Home Equity

HomeHappy • March 25, 2021

Investing in your future is the gift that keeps on giving. Owning property can create fantastic leverage, and give you opportunities to free up cash should you need it. When you borrow against your own investment, lenders often see you as a safer bet. 


Accessing the cash you’ve invested in your home can be great for debt consolidation, and for larger purchases like home renovations, making investments, or paying for education. 


Want to know more about how your home equity can work for you? 


Keep reading. 


What is home equity? 


Home equity is the portion of your home that you actually own. 


You build home equity in two ways: 


  • As you pay your mortgage.
  • If your home’s market value increases. 


Basically, it’s the difference between what you owe and your home’s current value. To calculate yours, subtract how much you still owe from the current price of your home. 


For example, if your home’s worth $450,000 and you owe $300,000 on your mortgage...you have $150,000 in home equity.


How it works


Your home equity is likely your most valuable asset. It’s a great financial tool that can allow more flexibility in your financial planning. Borrowing against what you own means you have a stake in the process, and gives lenders a solid guarantee that you’ll pay back what you borrow. This often results in better rates than a personal loan. 


First things first, there’s an approval process that determines whether you can borrow money against your home equity. Just because you have home equity, doesn’t mean you can use it. 


Note: not all lenders offer home equity financing options, and they aren’t created equally: consult us to determine your best options available.


Refinancing your home

Borrow up to 80% of your home’s appraised value, minus your current mortgage balance and any outstanding loans secured against your home. Refinancing is replacing your current mortgage with a new product. Your lender may also agree to refinance your home with one of these options: 


  • A second mortgage
  • A HELOC
  • A loan or line of credit secured with your home.


What you can expect when refinancing:


Your refinancing terms will likely be different than your original mortgage. While refinancing typically saves you money, as with any mortgage product, there are administrative fees like: appraisal fees, title search, title insurance, and legal fees. You may also have to pay a new mortgage loan insurance premium.


Click here for refinancing 101, and cover the basics of this complex topic.


Home Equity line of credit (HELOC)


Similar to your typical line of credit, a HELOC allows you to borrow money at your convenience, up to your credit limit. Typically you can access up to 65% of your home’s appraised value. Secured against your home, it’s a form of revolving credit: you can pay it back and borrow again. Much like your home, it’s there when you need it. 


What you can expect:


With discretionary access to your home’s equity, this is an option best suited to disciplined people. You’re responsible for monthly interest only payments on your outstanding balance. There’s no penalty, so it can be a great way to finance a project without modifying your mortgage. 


HELOC interest rates are variable and fluctuate with the market. There are associated administrative fees, and the terms of your original mortgage agreement may be altered.


For more details on getting a HELOC be sure to weigh the pros and cons against your needs, and consult us for expert advice. 


Borrow prepaid amounts


Have you made lump-sum payments on your mortgage? Your lender might allow you to re-borrow your investestment. Whatever you re-borrow (up to the total amount of all prepayments) will be added back to your mortgage.


What you can expect:


Your mortgage rate either stays the same or you’ll pay a blended interest rate on the borrowed amount. A blended rate combines the current market rate with your mortgage interest rate. 


With this option, you may not have to make any changes to your mortgage term. While you avoid many of the typical fees associated with borrowing on home equity, you should check with your lender. Fees vary, and your lender is the best source of specific information when it comes to borrowing on amounts you prepaid. 


Second Mortgage


The basics are in the name -- a second mortgage is a second loan taken on your home that’s secured against your home equity. You can borrow up to 80% of your home’s appraised value, minus your remaining mortgage balance. 


What you can expect:


You now have two mortgages, which means two separate payments. Both your first and second mortgages need to be paid simultaneously. 


Keep in mind, you could lose your home if you can’t make both your payments. If you default on the loan, your home will be sold to mitigate the lender’s loss. 


Since second mortgages are riskier for lenders, interest rates are typically higher. There are also administrative fees like appraisals, legal, title search, and title insurance to consider.


Reverse Mortgage


Access home equity without selling. A reverse mortgage allows you to borrow up to 55% of your home’s appraised value. Your borrowable limit depends on your age, your lender, and your home’s value. This option is not available to everyone. To qualify, you must be a homeowner and at least 55 years old. 


What you can expect with a reverse mortgage:


You only pay back your loan when you move, sell, or the last borrower dies. You aren’t required to make payments on a reverse mortgage until the loan is due, though your interest increases the longer you don’t pay. This means you may have less home equity when your loan term ends.


A reverse mortgage has higher interest rates than a regular mortgage, and can be either fixed or variable. The typical administrative fees apply. There may also be a prepayment penalty if you pay off your reverse mortgage before it’s due. 


For more information on how a reverse mortgage works, and other factors to consider consult us or click here for more information. 


Review your options


When broken down to the basics, it can seem like your options are more similar than different, but real life application is never so simple. The best way to understand your options, and what will work best for you and your family is to seek expert advice. 

Not only are you likely to save more money with a trusted advisor, it’s hard to go wrong when the service is free. Have your unique needs met by using the collective might of our fantastic team. Get the best deal and do more with your best asset. 


Quick reference table for comparing options to access your home equity:

Share:

Recent Posts

A flyer for the bank of canada announces a rate increase

Bank of Canada Rate Announcement Jun 4th, 2025

By HomeHappy • June 4, 2025
Bank of Canada holds policy rate at 2¾%. FOR IMMEDIATE RELEASE Media Relations Ottawa, Ontario June 4, 2025 The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. Since the April Monetary Policy Report, the US administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries. However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high. While the global economy has shown resilience in recent months, this partly reflects a temporary surge in activity to get ahead of tariffs. In the United States, domestic demand remained relatively strong but higher imports pulled down first-quarter GDP. US inflation has ticked down but remains above 2%, with the price effects of tariffs still to come. In Europe, economic growth has been supported by exports, while defence spending is set to increase. China’s economy has slowed as the effects of past fiscal support fade. More recently, high tariffs have begun to curtail Chinese exports to the US. Since the financial market turmoil in April, risk assets have largely recovered and volatility has diminished, although markets remain sensitive to US policy announcements. Oil prices have fluctuated but remain close to their levels at the time of the April MPR. In Canada, economic growth in the first quarter came in at 2.2%, slightly stronger than the Bank had forecast, while the composition of GDP growth was largely as expected. The pull-forward of exports to the United States and inventory accumulation boosted activity, with final domestic demand roughly flat. Strong spending on machinery and equipment held up growth in business investment by more than expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence. Housing activity was down, driven by a sharp contraction in resales. Government spending also declined. The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9%. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued. CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6 percentage points. Excluding taxes, inflation rose 2.3% in April, slightly stronger than the Bank had expected. The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up. Recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs. The Bank will be watching all these indicators closely to gauge how inflationary pressures are evolving. With uncertainty about US tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve. We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled. Information note The next scheduled date for announcing the overnight rate target is July 30, 2025. The Bank will publish its next MPR at the same time.

RRSP As A Downpayment

By HomeHappy • May 28, 2025
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.

Selling Your Property? Let's Talk

By HomeHappy • May 21, 2025
If you’ve been thinking about selling your existing property, for whatever reason, it would be in your best interest to connect with an independent mortgage professional before calling your real estate agent or listing it yourself. And while talking with your mortgage professional might not sound like the most logical place to start, here are a few scenarios that explain why it makes the most sense. If you’re buying a new property If you’re selling your property, chances are, you’ll have to move somewhere! So, if you plan on buying a new property using the equity from the sale of your existing property, chances are you’ll need a new mortgage. Don’t assume that just because you’ve secured mortgage financing before, that you’ll qualify again. Mortgage rules are constantly changing; make sure you have a pre-approval in place before you list your property. Also, by connecting with a mortgage professional first, you can look into your existing mortgage terms. You might be able to port your mortgage instead of getting a new one, which could save you some money. If you’re not buying a new property Even if you aren’t buying a new property and want to sell your existing property, it’s still a good idea to connect with a mortgage professional first, as we can look at the cost of breaking your mortgage together. Unless you have an open mortgage, or a line of credit, there will be a penalty to break your mortgage. The goal is to work on a plan to minimize your penalty. Because of how mortgage penalties work, sometimes it’s just a matter of waiting a few months to save thousands. You'll never know unless you take a look at the details. Marital breakdown The simple truth is that marriages break down. When that happens, often, people want closure, and unfortunately, they make decisions without really thinking them through or seeing the full picture. So, instead of simply selling the family home because that feels like the only option, please know that special programs exist that allow one party to buy out the former spouse. The key here is to have a legal separation agreement is in place. If you’d like to discuss the sale of your property and your plans for the future, connect anytime. It would be a pleasure to work with you!