Home Equity Credit Margin, Refinancing or 2nd Mortgage?

If you have a home or property, you may have some home equity. It is also possible that you have accumulated some debt or obligations. In this context, whether it is to get rid of a high-interest rate debt (such as a credit card), to finance renovations or simply to straighten your financial portrait, it is quite natural to turn to your most important asset to finance your most important financial obligations. The real estate capital you have accumulated can be used in many ways in your economic life. You can choose to open a Home Equity Line of Credit (MCV), you can apply for a second mortgage or you can simply refinance your existing mortgage and pocket the savings.

Each option is subject to different regulations and each has its own benefits to offer. While one option would make sense for someone with impeccable credit and a specific amount he or she would like to withdraw, another individual should turn to a different option that would be better suited to his or her needs. It is important to evaluate all the choices before moving forward.

HELOC

MCVDs have several advantages that you could benefit from: they allow you to withdraw up to 65% of the value of your home; they offer a credit limit, so you can simply withdraw what is useful to you and in many cases, the payments you would have to make would be only interest payments. In addition, the MCVD, which is available to you as soon as you have reached a 20% real estate capital, will cost you nothing more in fees than a variable interest rate and a low premium.

To qualify for an MCVD, you typically must have a credit rating of at least 650. It is important to note, however, that second-tier lenders could also offer you competitive options.

An ideal situation for obtaining an MCVD is the case of a major renovation: in these situations, it is common that these costs increase without notice. An MCVD allows you to have the funds available when they are needed without having to go back to the bank for a second loan and damage your credit rating with yet another investigation.

Refinancing

If you know the exact amount that is needed to accomplish your goals, a refinance could very well meet your needs. Just like an MCVD, refinancing requires real estate capital of only 20%. Despite the low capital required, you can access up to 80% of your home equity! Another aspect that is common with MCVDs is that a refinancing has a required minimum in terms of the credit rating needed to qualify – that is, 650 with a first-rate lender (you are not Also, do not obligate to go through your initial lender, you can shop an alternative lender, such as a bank or private lender). Refinancing once gives you money to do what you want to do, and gives you the option of a fixed or variable interest rate.

The most important difference between a refinance and an MCVD is the way the lender calculates your interest. In the case of an MCVD, you only pay interest on the amount you withdraw, while in the case of a refinancing you have to pay interest charges on the total amount immediately.

The refinancing option is also subject to certain fees that are not taxed in the case of an MCVD: prepayment penalties up to the equivalent of 3 months of interest; your minimum payments will not be limited to interest, but they will include a portion of your capital – however, be aware that the variability of an MCVD does not guarantee you lower payments and it is possible that your monthly payments may be lower at long in the case of financing. This is an ideal option in the case of a very important expense, such as the post-secondary education of your children!

A second mortgage

 A second mortgage

The third most common way to take advantage of your real estate capital is to go through a second mortgage. This is an interesting option if you do not think you can qualify for the other alternatives; that is, if you have less than 20% real estate capital, or if your credit rating is less than 650, the second mortgage could certainly interest you. As long as you have 10% real estate capital and a credit rating of at least 550, it is very likely that you could qualify with a private lender.

It is important to note that the second mortgages have several partner fees: there is a valuation fee, legal fees, insurance fees and mortgage fees of course. There will also be interest charges on the total value of the loan. In addition, by taking a second mortgage, you will end up with two minimum mortgage payments to make. These fees may make it a less attractive option, but you can borrow up to 90% of the value of your home and if you need a large sum, this would allow you to withdraw it without the exorbitant fees of a credit card. Speaking of a credit card – this option could also offer a consolidation opportunity for those looking to get rid of a high-interest rate debt.

These were three of the most common options to access the real estate capital of your property – they are three of several alternatives that all have and each has advantages and disadvantages. If you are looking for one that is best suited to your needs, you should approach the question honestly: why do you need a loan? What is your real estate capital? What is your situation? What is your credit rating?