How Ontarians Can Pay off Debts Fast With Home Equity

Life is expensive. Many homeowners look to their mortgage to reduce monthly costs and breathe easier regarding spending limits. Sometimes this means a second mortgage in Toronto.

If you own a home in Toronto and have been paying for it diligently for several years, you’ve likely begun to develop some equity. This equity can be used in the form of a second loan.

At Northwood Mortgage, we serve clients across Ontario in a variety of mortgage needs, including adding a second mortgage in Toronto. Here, we’ll talk about paying off debts using home equity, and how you can get started.

What is home equity and how does it work?

The first thing to understand as you begin this endeavor is what equity is and how to accumulate it. Essentially, home equity is the paid portion of your home. As you pay down your mortgage, equity encapsulates the accumulated investment of your mortgage payments.

Equity doesn’t impact the unpaid portion of your mortgage. This still needs to be paid in full. However, you may be able to use part of the equity you’ve developed as a secondary loan of sorts.

Paying Down Your Debt With Home Equity

Before tackling debt, do a few calculations to determine how much you have. Some aspects to include in your calculations are:

Credit cards
Vehicles
Other properties
Loans
Tax debt

As you make these calculations, include elements like interest rates. Next, you’ll calculate your current home equity. From here you choose the financial products you want to use your equity for. The most common are:

A Second Mortgage in Toronto

As the name suggests, the second mortgage in Toronto is just that, a second home loan. In this case, you can borrow up to 80% of the house value apart from the first mortgage balance.

Both mortgages need to be paid off as set out in your contract. The second mortgage is secured against the equity you have accumulated in your property.

Home Equity Line of Credit

A home equity line of credit (HELOC) is a loan borrowed against the accumulated equity in your property. For example, a home valued at $400,000 with a remaining $250,000 to pay off gives you $150,000 in equity.

Equity can also develop naturally with the market. As the value of your property grows, your mortgage repayments don’t. This means your home is worth more than the $250,000 remaining on your mortgage, adding to your available equity.

Why use equity to pay down debt?

A home equity-style of loan is secured by your property. This makes it less risky for lenders than other loan products. Less risk means lower interest rates. In turn, you’ll spend less repaying your equity loan.

Of course, there are some disadvantages to a home equity loan. You’re suddenly back at square one with little to no equity to show for your repayment efforts.

When determining if a home equity loan or second mortgage is right for you, speak to an experienced mortgage broker.