Can outstanding debts be paid off with help from the equity of your home? How does this even work?
Home equity line, home equity loan, getting a “second mortgage” on your home, etc. are all different names to describe the same concept.
Often used as debt consolidation option by homeowners, all of these terms imply one thing: the loan a bank provides you against the portion of your home’s value or equity.
How Is Home Equity Calculated?
Home equity is the value of your home left after the amount you owe to the bank (in mortgage) is subtracted from the total worth of the property. For instance: your home’s value is $300,000 but you owe $220,000 on mortgage. The leftover amount, i.e. $80,000 is your home equity.
Increasing Mortgage to Pay Off Debts – Does This Even Work?
One solution of paying off outstanding debts is taking out a second mortgage and using some of this equity, for debt repayment. This is an option that your bank might allow. Learn everything about this step before taking a leap in this direction.
Opting For Debt Consolidation Loan
You will be signing up for a debt consolidation loan when you take out a second mortgage. Refer to the mortgage rules in Canada before applying for the loan or speak with your bank. You might have trouble taking out a debt consolidation loan, especially with a poor credit score.
This is where EmpireOne comes in. You can discuss all available options with an experienced counsellor to make sure you pick the right option.
Disadvantage of Taking Out Home Equity
Canadians have been borrowing against their home equity for a long time. Such a step, if followed once or twice in 2-3 years, is acceptable. But most people are now dependent on their home’s equity. They take it out just to make ends meet!
Using your home’s equity as your personal ATM actually does more harm than good. Doing so will leave you in far more debt than the worth of your home, taking ups and downs in property values into consideration. Some people are forced to sell their homes to pay off outstanding debt.
You can go this route or contact EmpireOne to explore your debt repayment options. A little professional help will go a long way in making a debt-free.