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How Mortgage Brokers Can Help with Home Equity Loans?

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Are you considering renovating your old kitchen or purchasing new furniture in the living room? Or maybe you need urgent funds for an emergency. Whatever the need, home equity loans can solve the need for extra cash as long as you have a property. We’ll see how equity loans function and whether they’re a good option for you.

What Is a Home Equity Loan?

The moment your home has built enough equity, you can use it to borrow a reasonable amount of lump sum in the form of a home equity loan. The period within which you must pay back the loan spans from five to thirty years, and the interest remains fixed. However, you mustn’t forget that your home acts as collateral which implies that failing to repay the loan on time will lead to a foreclosure.
Current home equity plays a major role in the amount that can be borrowed (besides your financial situation and other factors). The majority of lenders allow their clients to borrow a sum that amounts to around 80-85% of the home equity. This is plainly the value of your home minus the mortgage balance.

The Pros and Cons of Home Equity Loans

Home equity loans are an excellent way to complete renovation projects or fund emergency expenses as well as you can afford to pay them back in time. Using a home equity loan for home improvement projects is beneficial because the interest to be paid by borrowers is tax deductible. But before proceeding to get a home equity loan, it’s good to know these cons and pros:

Pros

  • Compared to personal loans, credit cards, or other unsecured debt, the interest rates are lower.
  • Tax deductible interest rates (depending on usage)
  • Competitively high borrowing limits
  • Manageable fixed monthly payments

Cons

  • Foreclosure of your home if you don’t pay on time under the law the Mortgages Act.
  • Closing costs can be higher depending on the lender.

How to Apply for a Home Equity Loan?

Firstly, it makes sense to calculate the equity of your home and the amount you can borrow with the current mortgage. This amount depends on specific factors such as your credit score and financial situation but we can take a generic example as an illustration:
If your home market value is $900,000, to calculate the amount that you can borrow, we’ll first have to check the Loan-to-Value (LTV). This is done by dividing the outstanding loan balance by the value of your home. Let’s assume the loan balance for this home is $400,000. Then, your LTV would be:
$400,000/$900,000 =  0.44
This gives you 44 percent equity in your home. Check this with the lender’s maximum LTV to see whether you qualify for a loan and then calculate the possible amount you can borrow. To do this, take the max. LTV of the lender, multiply it by the home value, and then subtract the mortgage balance. For a lender who can give up to 85 percent of the home value this would be:

($900,000 x 0.85) – $400,000 = $365,000

You’ll be able to initiate the process online or in person in most cases by providing these documents and information:
  • Employer’s contact information and employment history
  • Social Insurance Number (SIN)
  • The child support or alimony amount
  • Income evidence for the last two years
  • Recent pay stub
  • Mortgage statement
  • Homeownership proof
  • Declaration of home insurance
  • Home valuation or appraisal
  • Current home liens' evidence

Why Hire a Mortgage Broker to Get a Home Equity Loan?

What seems the easiest way to source this is to find it yourself through banks, online lenders, credit loans. What you will find is the quickest and less costly solution is to hire a mortgage broker. Firstly, there are products that are simply not available to the public if you walk into the bank yourself. So you will save more money as this is the incentive for these banks/lenders which is to give this to mortgage brokers only as opposed to the high cost of hiring numerous mortgage agents for employees to sit in the bank.
Secondly, the mortgage broker will act as the go between the client and the lender as they are more experienced in dealing with banks all the time. Clients don’t realize everything that is said in communication by phone, email, in person is recorded pretty much forever with the lender and can imply different things. This can greatly affect the outcome of your application approval and even if it is approved, can be approved with higher rates in the wrong product.

Thirdly, the Mortgage broker only pulls your credit once to deal with multiple lenders at the same time without affecting your credit score. Every time a credit report is pulled, the score will drop as it is counted as a hard pull. As well, banks don’t like credit chasers as the report will show detailed information for every credit pull with each lender, questions can be raised as to what happened with the other lenders.

Lastly, the Mortgage broker will work for the client to get the best possible mortgage for each individual situation.

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Karen Parrot
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