Leveraging your home equity
You've invested in your home. Let it pay you back.
Thanks to a strong real-estate market, most homeowners are sitting on more equity than they realize. Here's how you can leverage the value of your biggest investment - your home equity - to acquire the vacation property you've always wanted, help your kids buy a condo or invest for future greater returns.
Tapping into the equity built up in your home is a smart way to finance other investments such as a vacation home, rental property, or bumping up your retirement portfolio. You can do this by taking out a home equity line of credit. Your financial advisor will be able help you assess how to best accommodate your needs.
Home equity line of credit – ongoing cash on demand.
A home equity line of credit (HELOC) is a variable-rate revolving credit line more akin to a credit card with a maximum spending limit. Homeowners can borrow money, pay it back and then borrow more as needed. Accessing the funds is easy.
Since interest is charged only on the money that's actually borrowed, a HELOC works best for those with ongoing needs like recurring expenses or a long-term home-improvement project. It may also be useful in case of an emergency, such as an unexpected job loss.
How much can you borrow?
Borrowing levels depend largely on how much your house is worth. In a strong housing market, you can usually tap up to 65% of the appraised value of your home (known as the loan-to-value ratio), minus the remaining balance on the first mortgage. For example, if your house is worth $800,000 and you owe $400,000 on the first mortgage, you can borrow up to $120,000, assuming that payments can be met.
The good news: an easier application process.
Applying for a home equity product involves the same process as a mortgage. Most lenders will appraise the property, run a credit check, and look for confirmation of your income. If you're planning to invest in a rental property, the monthly income can be used to service the loan payments.