Your home is one of your best and biggest assets. However, if you want to access the equity you’ve built up in your property, what is the right way to do it? You may have heard about Home Equity Lines of Credit (HELOC), but are unsure what they are. You may also be wondering if a second mortgage on your home is the best way to use your equity. Let’s look at what each of these mortgage products are and the benefits they offer.

HELOC

A Home Equity Line of Credit is similar to other lines of credit in that your lender will give you access to a certain sum of money. It is considered a revolving line of credit. You can draw on this money as needed; there is no requirement to use it all. You’ll be expected to make monthly payments on the loan. HELOCs are often only offered for a limited time, usually around 10 years.

HELOCs come with variable interest rates, which means that the interest you pay on the loan fluctuates depending on the market. This can make it difficult to budget your monthly payments, as they can change from month to month.

If you’re not able to make your monthly payments, you could lose possession of your home. Also, if the value of your home drops, then your lender may freeze your line of credit.

Second Mortgage

A second mortgage is also called a home equity loan. This is a lump sum that a lender gives you, and your home will be the collateral. You’ll have monthly payments until the loan is paid off. However, these loans have fixed interest rates, which means you’ll pay the same amount from month to month.

Getting approved for a second mortgage means you’ll have to go through an application process. It will include an appraisal to determine the value of your home, which is used to calculate the equity that you’ve built.

The biggest drawback to a second mortgage is that you could lose your home if you are unable to make the payments.

Is a second mortgage right for you?

Before you decide to take out a second mortgage, talk to a professional about your mortgage solutions. Brokers can help you determine if a second mortgage is the best option for you.

Using the equity in your home to help you today can still leave you with a large debt problem tomorrow. It can also put your house at risk, as it will be the collateral to secure your loan. The equity you’ve built up in your home is one of your biggest assets. Use it carefully and consider your options before making a decision.

If you are interested in learning more about second mortgage options in Toronto, call Northwood Mortgage™ at 888-492-3690 or contact us here.