In today’s hot housing market, many Canadians are using the opportunity to capitalize on the equity they’ve built up in their home to purchase a second property. An increasing amount of Canadian homeowners currently own more than one property. A recent study indicated that more than 10% of Canadians own more than one home. A large percentage of those individuals used the equity from their primary residence to make the purchase.
It presents a unique situation for homeowners to purchase a rental property, buy that sought-after vacation home or cottage, or even just to build up a personal property portfolio. Whatever the reason, the current trend to purchase a second property is in full swing as homeowners aim to leverage their current home equity to fulfill their dreams.
What to consider
You might have been thinking of purchasing a property for a while, so now it’s time to make it a reality. It’s important to focus on the fact that this purchase is an investment and it needs to be considered with a business mindset. As hard as it might be, try to remove any emotional element in order to make a sound decision. Before committing to the second property, consider the following factors:
- Consider the location and whether it meets the basic criteria to fulfill the end purpose
- Can you afford the property? Figure out how much you can afford based on the equity that’s available to you and how much you can possibly borrow
- Will the property need to be renovated? If so, be sure to factor in those costs
- What is your credit score? If you have poor credit, you can still apply for a loan, but you may need a larger down payment and the interest rate will be slightly higher to compensate for the increased risk to the lender
- Will you be able to maintain the property? Be prepared to handle the operational costs, maintenance, and repairs
- If it’s a rental property, are you equipped to deal with tenants? Tenants can bring in regular income but can also come with headaches. Be sure you are prepared to handle any challenges as they arise. Also, will it be cash flow positive? Determine the total expenses for the property including mortgage payments, taxes, maintenance, or any other expenses. You can then see if the rent will cover these costs or if you will need to put money in out of pocket each month
- If it’s a vacation property, is it being used for weekend getaways or as a retirement home? Be certain it fits your current or future lifestyle
Applying For a Home Equity Loan, A Home Equity Line of Credit (HELOC), or a Second Mortgage
Utilizing a home equity loan, a Home Equity Line of Credit (HELOC), or a 2nd mortgage are all great ways to tap into your home equity. The money you secure from either of these lending options through a mortgage broker can be paid back at comparatively low-interest rates when compared to other borrowing options.
Taking out an additional mortgage is a big decision for many homeowners. That’s why it makes sense to consult with an experienced mortgage broker to discuss your options. At Burke Financial, we understand that taking out a second mortgage, a home equity loan or HELOC is a big deal, and we don’t take it lightly. We have extensive industry experience helping people get the best mortgage rates and will do everything to make sure you get the best possible deal.
At Burke Financial, we can guide you through the process, advise on the best steps and you help decide which loan option is best so that you can make your second property dream a reality.
