The Beauty of Equity!

Equity in your home has unlimited possibilities. Are you dreaming of a backyard oasis? Who would blame you after this most recent winter. You may wonder what equity is and how it can help you. This article will discuss how to calculate your equity and some options available to you.

How equity is built

Let's say that the value of your home is $500,000 and that your mortgage balance is $250,000. This means that you have built up $250,000 worth of equity, all the while increasing your net worth. The equity has increased for two reasons. The first is that real estate values typically increase from when the house was purchased. The second reason is that you have been making regular payments to reduce your mortgage balance. The pay down, in conjunction with the increased value, creates a gap. This gap is the home equity you have established.

If you want to tap into that equity, you can borrow up to 80% of your home's value pending lender approval. There are many reasons that you may want to do this. The most common reasons would be to consolidate debt, renovate, assist children with education expenses, put in a swimming pool, or use it for a down payment on a cottage or rental property.

A worked example on a $500,000 home

• $500,000 Home value, as determined by a certified appraiser. This must be facilitated by the lender.
• $400,000 The limit, which reflects 80% of the appraised value.
• $250,000 Current mortgage balance.
• $150,000 The funds available to you: the $400,000 limit, less the mortgage balance of $250,000.

We have determined that you have $150,000 available at your fingertips. So what is next? How do you go about getting it? Talk to a mortgage professional who can assist you step by step in the process. There is a multitude of options and you want one that best suits your needs.

You could have the $150,000 set up as a line of credit so that it is readily available. This would make sense if you have a plan for the funds but are not quite ready to utilize them yet. Maybe you want a few lines of credit for $50,000 each. These separate lines of credit would be useful in assisting with post-secondary education for your children, as you would be able to track everything individually. You may want one payment and have the whole amount set up as a mortgage without a line of credit component. How you choose to utilize your equity is up to you. Helping you find the best solution is up to your mortgage professional.

Originally published May 5, 2018. Rates, programs and rules mentioned reflect that time; for today's numbers see the rates page or ask Tisha.