For many Canadian homeowners, their home is the biggest
investment they will make in their lifetime. There are several options
for loans for homeowners, and in this article we’ll look at two options:
an equity mortgage versus a mortgage loan.
Home Equity Mortgage
A home equity mortgage is different than a regular mortgage loan in
that it acts more as a line of credit. If you take out an equity
mortgage, the bank will agree to lend you a certain amount, but with the
equity in your home acting as collateral.
An equity loan will usually have lower interest rates than a line of
credit, and these rates will usually be variable, fluctuating with the
market.
An equity mortgage does not require a monthly payment
like a traditional mortgage loan does. Rather, it works like a credit
card where you will need to make a minimum monthly payment. Taking out
only what you need rather than having to make a set monthly payment can
help homeowners save money on interest rates.
Many homeowners prefer the flexibility of an equity mortgage.
However, it can be riskier than a traditional mortgage in that if you
cannot make your payments, your home is at risk.
Mortgage Loans
A traditional mortgage loan can come as a fixed rate mortgage or
variable rate mortgage. First, you will need to be approved by your
lender. Once you have been approved, your mortgage is calculated based
on your income, any existing debt, and the price of the property.
Mortgage rates are based on the mortgage market.
Whether you have a fixed or variable rate mortgage, you will make the
same monthly payment for the duration of your mortgage term. With a
variable rate mortgage, the interest rate fluctuates based on the rates
set by the bank. A variable rate mortgage, though riskier than a fixed
rate, can save homeowners money if interest rates fall, and offer
greater flexibility.
The biggest factor in deciding which loan is right for you is your
financial planning. A mortgage loan is best for people who want to pay
off their mortgage in a specific amount of time and make the same
payment each month. A home equity mortgage allows greater flexibility
and can be more adaptable, especially if you have unexpected expenses.
There are many complex factors when it comes to choosing the right loan. Consult one of our professional, experienced mortgage agents today to discuss which option is right for you!
source: northwoodmortgage.com