We have all heard the doom and gloom that is surrounding the world economy especially in Real Estate. Although some parts of Canada have being hit by a negative decline in Real Estate Value Toronto and GTA has continuously performed well. As a result the equity in ones property has increased. With current interest rates being as low as they are, now could be an excellent time to tap into that equity take out if needed. Equity in a property belongs to the owner, it yours and can be used for a number of things
Mortgage Refinance is basically taken your existing mortgage and adding new money onto it or adding a separate mortgage/Line of credit. In Canada you can borrow up to 85% of your home value, 80% for investment property. For example a home worth $400,000.00 with a mortgage of $200,000.00 can be refinanced back up to $340,000.00 ($400,000.00 x .85%) or the client has $140,000.00 of equity they can take out. Traditional mortgage refinance has being used for Debt Consolidation, To Purchasing another property or Investing in RRSP or other Investments.
Debt Consolidation: This is where the client combines all their outstanding debt into one loan/mortgage, By doing this they can increase their cash flow and lower their overall monthly cost and interest rate. Let’s take a client with a $300,000.00 mortgage, a unsecured line of credit for $20,000.00 and a visa of $10,000.00. This client’s monthly cost on the mortgage is $1700.00, $600.00 on the line of credit and $100.00 on the visa. That is total monthly costs of $2400.00. If the client rolled all their debt into one loan/mortgage their monthly expense would be reduced to $1900.00 per month. That is savings of $500.00 and all debts are being paid down. With rates being as low as they are there mortgage amortization (mortgage pay off time)would also decrease.
Purchase another property. Because the equity in your home is yours you can use this money as a down payment on a investment property, new home or second home such as a cottage. Purchasing a investment property is a great way of building for retirement. On a investment property the rent you collect can pay your mortgage and the mortgage interest is a tax right off. So if you do your home work correctly you can own a investment property by using the equity in your home and pay off the mortgage with the rent collected.
Equity Take Out to Invest. Equity from your home can be used to invest in investment such as stocks, bonds and mutual funds. If someone has a high RRSP contribution limit, they could use equity from your home (at a really low interest rates) and apply the money into their RRSP which could result in a very large cheque back from revenue Canada. Consulting with an accountant on this strategy too is a good idea.