Credit: Gennifer Miller Via Unsplash
Every summer, Canadian homeowners take advantage of the good weather to do major renovations. Installing a new roof, replacing a boiler, or repairing a foundation are not projects that can be put off for long, and getting the work finished before autumn is often essential.
But for Canadian families that are under financial pressure, finding the money to pay for this work can be a concern. The pandemic has impacted Canadians in very unequal ways, and while some families have seen their savings increase, others have struggled to stay afloat.
The good news is that there are options available for homeowners to pay for essential repairs without having to max out their credit cards. Home equity loans offer lower interest rates and are available to anyone with equity in their home — regardless of their credit score.
What is a Home Equity Loan?
A home equity loan (also known as a second mortgage) is a financial tool that allows homeowners to borrow against the value of their property. As you pay down your mortgage, the percentage of the property that you own outright grows, and you can use this asset as backing for a secured loan.
Home equity is calculated using a simple equation: the current market value of your property, minus your outstanding mortgage. If you have a home that is worth $700,000, and your outstanding mortgage is $250,000, you have $450,000 in equity built up. A home equity loan allows you to access up to 85% of this value in the form of an additional loan.
While a home equity loan will extend the amount of time it takes to pay off your mortgage, if you are in urgent need of funds, it is one of the best ways to borrow.
Why are Home Equity Loans a Good Way to Fund Renovations?
Compared to other types of loan, home equity loans for home improvement have a few distinct advantages:
- Home equity loans have lower interest rates than unsecured loans
- The repayment schedule can be negotiated to have low monthly payments
- Because they are secured by an asset, those with bad credit scores can usually still take out home equity loans
When you have urgent repairs that need to be done, putting them off until you can pay for them outright will simply make the situation worse. A roof that is reaching the end of its life will start to leak, causing damage to the rest of your home and driving up the overall cost of the work. Even factoring in the interest payments, taking out a loan to pay for it now will save you money in the long run.
Home maintenance renovations can be very expensive, and most homeowners have to take on at least some debt to pay for them. Using a home equity loan gives you a lower rate of interest, and a mortgage broker like Burke Financial can help you unlock the funds you need in a matter of days, freeing you up to book repairs immediately.
No one likes going into debt unnecessarily. But some forms of debt are better than others — just as a mortgage is essential if you want to invest in owning property, a home equity loan is one of the best ways to fund emergency repairs to make sure your investment continues to grow in value.