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Differences Between Refinancing a First Mortgage, Home Equity Lines of Credit and Second Mortgages

Differences Between Refinancing a First Mortgage, Home Equity Lines of Credit and Second Mortgages

If you have built up significant equity in your home then you can access it through several refinance options. Your home’s equity is the difference between the appraised value and the balance left on your mortgage. As your Edmonton mortgage broker, I can help you figure out which option is best for you.

Home Equity

Accessing your home equity can give you a lump sum of money that can be used for many different reasons. This money can be used for making renovations on your home, funding down payments for additional real estate or making investments. It’s also very common to use equity to consolidate debt, fund children’s education or for start-up capital for a new business. You can access your home equity with a new first mortgage, a Home Equity Line of Credit or a second mortgage. Typically you can borrow a maximum of 80 percent of the value of your home in a refinance.

Refinancing with a New First Mortgage

Refinancing your Edmonton mortgage means you are completely paying off your existing home loan with a new loan. This typically gives homeowners a lower interest rate and you can extend the loan amortization period. Equity takeout refinancing is when your new mortgage is larger than your original mortgage, and the difference between the two loans is the amount you receive in cash. If you need to pay off debt or want to make home renovations, an equity takeout is a great option to access cash without increasing your credit card debt.

Home Equity Line of Credit

A home equity line of credit or HELOC is a line of credit that is secured by your home. You can borrow any amount available on the line of credit and only pay interest on the amount that you’ve borrowed. The required payment can be as little as interest only. HELOCs have a variable interest rate which means the interest rate and payment can change anytime there’s a change in the lender’s prime rate. HELOC rates are typically more expensive than first mortgage rates.

Second Mortgage

A second mortgage is different than refinancing a first mortgage because it means you are getting an additional loan on your home. This means you will have payments on two separate mortgages.

Second mortgages are often offered by private lenders for people who require short-term money and may have difficulty qualifying for a new first mortgage. The interest rates on second mortgages are much higher than first mortgages however the payments are often interest only.

Get Started

As your Edmonton mortgage broker, Jason Scott from TMG The Mortgage Group can provide assistance in helping you tap into your home equity. His knowledge and expertise in the field can help educate you on whether an equity takeout, home equity line of credit or a second mortgage is the best option for you.

Call 780-721-4879 for more information.

 

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