How can I pull Equity out of my house?

If you own a home in Canada, you may be wondering how to pull equity out of your home. Equity is the difference between the current value of your home and the amount you owe on your mortgage. Pulling equity out of your home can be a good way to access funds for home improvements, debt consolidation, or other financial needs. In this blog post, we will explore some of the ways you can pull equity out of your home in Canada.

Home Equity Loan or Line of Credit

One way to pull equity out of your home is through a home equity loan or line of credit. These are loans that use the equity in your home as collateral. A home equity loan is a lump sum of money that is paid back over a fixed period of time, while a home equity line of credit (HELOC) is a revolving line of credit that can be used and paid back as needed.

To qualify for a home equity loan or HELOC, you will need to have a certain amount of equity in your home, at least 20%. Typically, you must also have a credit score above 680 and provable income to support the loan.

Most Home Equity Lines of Credit allow you to leave your current mortgage in place. If your current fixed rate is much lower than the rates being offered in the market, you would want to consider a Home Equity Line of Credit over a Cash-out Refinance so that you can maintain your low fixed rate while simultaneously opening up flexibility for you to have access to the equity in your home.

Home Equity Lines of Credit are a great tool for someone wanting to pull out equity and pay it back quickly. Maybe, you want to start a renovation, but you know that you will receive a bonus later in the year. You can use the funds on your home equity line of credit to start the project and then make a large lump sum payment when you receive your bonus down the road.

The typical pricing of Home Equity Lines of Credit is Bank prime PLUS 0.50 percent. At the time of writing, Bank Prime is 6.70%, which makes the rates for HELOC’s approximately 7.20% at most lenders.

It’s important to remember that there are always exceptions to pricing rules; at Spire mortgage team we have been Home Equity line of Credit pricing range between Prime +0.00% and Prime +1.00 in the last 6 months.

Many lenders offer line of credit products. It’s important to consult with a mortgage broker to determine which is best for you. Here are a few of our favourite Home Equity Line of Credit products at Spire Mortgage Team

1. Scotiabank - The Scotia STEP

2. TD Bank - the TD Flexline

3. Manulife - the Manuline One

4. Canadian Western Bank - Homeworks Line of Credit

5. ATB - HELOC

6. Servus Credit Union - HELOC

Cash-Out Refinance

Another way to pull equity out of your home is through a cash-out refinance. This involves refinancing your existing mortgage for a larger amount than what you currently owe and taking the difference as cash. To qualify for a cash-out refinance, you must have more than 20% equity in your home. In Canada, you can only “refinance” to 80% of the current value of your home. To gauge your home's value, consult your mortgage broker about hiring a licensed appraiser.

Clients typically use Cash-Out Refinances to pay a higher-interest debt that they know will take several years to pay back or to stretch debt payments out (by including them in the mortgage), to bring their overall monthly payments down and their monthly cashflow in line. Here are a few examples of debts that are often paid from a refinance:

1. Credit Card debts (typically between 19% and 23%)

2. Unsecured Line of Credit debts (typically between 7%-9%)

3. Car and boat loans (typically slightly higher than the cost of a mortgage loan)

4. Student debts

When considering a Cash-Out refinance it’s important to remember that you are often giving up your current mortgage to restructure this into a new mortgage. There is a chance that you might be refinancing your entire loan into a higher mortgage rate.

Reverse Mortgage

A reverse mortgage is a loan that allows homeowners aged 55 and older to access the equity in their home without selling it. The loan is repaid when the homeowner sells the home, moves out, or passes away.

To qualify for a reverse mortgage, you must have significant equity in your home and be at least 55 years old. The amount you can borrow will primarily depend on your home's value and your age at the time of application.

A reverse mortgage is used when dealing with clients that are older than 55 years of age, and do not want to manage a monthly mortgage payment. The interest rate on a reverse mortgage may be higher than a traditional mortgage, so it's important to consider the costs and benefits before deciding to proceed.

Potential costs of pulling Equity out of my home:

Each of these transactions may come with the following costs. It’s important to check with a mortgage broker to understand which costs apply to you:

1. Legal fees to change the lien on the title of your home to either a larger mortgage amount or the name of a new lender

2. Appraisal fees to determine the current market value of your home

3. Payout penalties. If you’re breaking your current loan to refinance into a new loan your current lender may require that you pay a penalty.

Conclusion

There are several ways to pull equity out of your home in Canada, including home equity loans, HELOCs, cash-out refinancing and reverse mortgages. Each option has its advantages and disadvantages, and it's important to consider the costs and benefits before deciding which is right for you. Consult with a mortgage professional to help you make an informed decision that meets your financial needs and goals.