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.
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!