To start  2022 off we have our friend and mortgage professional Emily Miszk talk about leveraging your home equity! Feel free to contact us for any assistance on buying an investment property and be sure to reach out to Emily for all your financing questions.

Take it away Em!

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It’s not news to anyone that home prices have skyrocketed over the past few years, and with most homeowners spending more time at home these days, it’s also no surprise that more and more people are looking to borrow in order to invest more in their lifestyles at home.

Whether it’s making the home work-from-home ready, sprucing up the leisure options, getting a secondary property, or anything else that sparks joy, home renovations and big-ticket items are booming industries during the pandemic.

Thankfully, in a time where home values have jumped, your home can be an excellent source of financing these once considered “extras.”

When getting started, I advise my clients to look at what they need first. When examining the total cost of a project, it’s best to plan for the unexpected. A solid baseline to consider is 20% of the expected cost. For example, if you are considering doing a $100,000 kitchen upgrade I would suggest adding another $20,000 to your borrowing amount. A buffer can protect you if timelines are extended or costs rise. Flexibility when making major changes is always positive in my experience.

Speaking from experience, a major project can easily vary by 20%. At the time of writing this,  we’re actually mid-build on a second story addition on our home – which you can follow along here if you like.
In many cases, the equity in your home can also be used to consolidate other debts as well, so it is important to consider your holistic financial picture when figuring out the strategy for the total need.

It’s also important to look at the schedule of payments. Do you need everything at once, or will you need chunks of money over time? This can help you to decide between a closed mortgage (a one-time draw with a fixed payment schedule) and a line of credit (which you can draw from as you need it). One of the great features of a mortgage is the pre-payment allowance. So if you did end up borrowing more than required and you don’t need it, you can put that money back
onto the mortgage and limit any additional cost of borrowing.

It’s also important to look at the time you’ll need the first draw. New financing typically takes about 45-60 days to set up, so to be safe, speak to a mortgage professional two months in advance.

How you raise the money from your home is another question. When working with my clients, factors that we account for are any penalties that would be levied to break an existing mortgage, the need or ability for flexibility, and existing rates on any current mortgages.

If a penalty is too high, or the existing rate is better than what is available at the time, then it can make sense to keep the existing mortgage in place and look to add a second mortgage. If it does make sense to break the mortgage, then you can look to set up one new, larger, a fixed mortgage, or even a hybrid option with a portion locked in and a portion that is in a flexible line of credit.

At the end of the day, no two situations are the same, and different lenders have options that can work well in different scenarios. So, it’s important to work with an experienced mortgage professional that you can trust and be open with. That way, they can help you work through the best options and take a lot of the stress out of financing. After all, it’s way more fun to think about what you’re going to create anyway!

Emily Miszk

Emily Miszk
emily@portcreditmortgages.com
416-669-6322
Port Credit Mortgages | The Mortgage Coach