It’s something anyone dreams about: their own house. But what with the heavy hammer of down payment weighing upon your pocket, it would truly be difficult to save for it. Homeowners can use this equity already created in Canada to pave the way for quicker relocation. Leveraging this equity wisely could boost the down payment on a new home significantly, allowing you to negotiate better mortgage rates and minimizing your monthly outgo, among other things, thereby equipping you with the purchasing power. So rather than saving for years, just get into your dream home.
A time-tested way of using home equity for a down payment is a bridge loan. Such a short-term loan “bridges” the time span between selling your current home and purchasing a new one. It allows you to access some of the equity lying idle in your current property before it is technically clothed in title to the next owner, so you can fund a larger down payment on your new purchase. The bridge loan gets repayed usually from the sale proceeds of your old home after closure. In a fast-paced market, one’s bridge loan might be handy when speedy securing of the chosen new home is of utmost priority. However, bridge loans come with fees and are charged interest, so one should weigh the advantages against the expenses.
The other option is to cash-out refinance on your current mortgage. This involves taking out a new larger mortgage on your current home and pulling out some of the equity as cash. This cash could be used for your down payment on the new property. The cash-out refinance lets you tap your equity right away but without the pressure of selling within a short time frame. However, it does mean getting a bigger mortgage on your current home. You want to make sure that your income will be enough to cover the increase in monthly payments. Furthermore, refinancing comes at a cost and could interrupt some of your existing mortgage terms.
Selling first and using the net proceeds for your down payment is an indirect but relevant option. It frees you from the complexities and costs involved in bridge loans or refinancing. It might necessitate setting up for short-term rent, but at least you have a perfect idea about the balance of funds you have available for your down payment and will feel less stressed with the buying process of your new home. This strategy is often preferred by those who are flexible with time regarding their move or require a clean breakup before the procurement of another.
Considering all these options and knowing the intricacies of the Canadian mortgage market can be pretty complex. This is where a mortgage expert becomes very useful. A company like Clover Mortgage pros can walk you through and help explore the best home equity leveraging options. They will assist you in evaluating your financial situation, look at the pros and cons of bridge loans versus refinancing options, and come up with a good road toward increasing your down payment to your new home. Having the expertise of mortgage products and lenders knowledge in Canada will expedite the process and save you money finally.
No matter which path you decide to take, adding more to your down payment has various benefits. Usually, it means putting less on your mortgage, so smaller monthly payments and less interest over the entire life of the loan. While at it, you might even qualify for better mortgage rates since lenders are rather sympathetic toward those putting down more equity. More importantly, if the down payment reaches 20% or above, you would be exempted from purchasing mortgage default insurance in Canada, which is surely a good chunk of change.
Leveraging your equity is a course of action which Canadian homeowners looking to upgrade or relocate can use extensively. When considering these alternatives and running scenarios through mortgage specialists, you can easily increase your down payment enough to make buying a new house well in reach of your dreams.
