Leverage a Home Equity Loan to Invest

Published on 29 August 2022, 07:22:56 AM

Put a home equity loan to work by investing in income properties or a business. Buying rental properties could give you income for life. So could buying a successful business, or starting a franchise in your community. 

Instead of leaving equity in your home for when you sell, you could start profiting now by taking out a home equity loan. You benefit from fixed term interest rates, and you can use a home equity loan right away. 

Unlike a home equity line of credit in Toronto, a loan is a stable way to borrow money you have definite plans for. Rather than using it here and there like a credit line and paying only interest, a home equity loan is paid off over a specific  term. at a fixed or variable interest rate you choose. 

How home equity lines of credit compare to loans. 

How Much Can You Borrow…

…against the equity in your home? You may have bought your home just recently and seen housing prices go way up, or bought awhile ago and steadily paid down your mortgage. The difference between the mortgage balance and your property’s fair market value is the total home equity loan amount available to borrow.

What is Your Home Worth?

You may have bought your home just recently and seen housing prices go way up, or bought awhile ago and steadily paid down your mortgage. The difference between the mortgage balance and your property’s fair market value is the total home equity loan amount available to borrow.

You can find out what your home is worth by:

• checking MLS listings for prices of comparable homes
• having a realtor estimate your home’s value
• or hiring a real estate appraiser for a professional opinion.

What to know when you buy income property in Ontario. 

How a Home Equity Loan Works

Exactly what is an equity loan and how does it work?

Let’s say an appraiser tells you your townhouse is worth $349,950. Lenders will usually advance up to 80% of that ($279,960) in a home equity loan, but only if your mortgage is fully paid. Whether you put 5% or 25% down when you first bought your home, the holdback is typically 20%, roughly equivalent to a conventional, low ratio down payment. 

Now calculate your remaining mortgage amount:

$349,950 – $235,750 = $114,200

With $235,750 remaining on your mortgage, the most you can borrow as a home equity loan (80% of $114,200) is $91,360. That’s still a fair amount, and more than you may have been able to get if you didn’t own a home.

Now let’s say you borrow $50,000 of that $91,360 to upgrade the kitchen. How much is a $50,000 home equity loan payment? Interest rates are higher than for mortgages, so as long as your credit is in good shape, expect to pay around prime plus 0.5% to 1%. Your lender may offer lower rates if your credit is excellent. Who decides mortgage interest rates. 

Questions to ask real estate lawyers in Ontario. 

Just How Long is a Typical Home Equity Term?

Around five to 15 years. But don’t let your financial guard down just because the term seems desirable. You pay monthly interest for the life of the term. Plus, you  could be charged title search and title insurance fees, appraisal costs, and a mortgage loan insurance premium. Read this before you borrow against your home equity. 

Where to Invest Your Home Equity 

Buying investment property in Ontario is a risk, but less so than other tangible assets that depreciate more quickly, like vehicles. That’s why lenders are open to letting you use home equity for income property purchases. They have your first home, and now a secondary investment property, to fall back on if you default on mortgages or your home equity loan.

What’s the best place to invest your newfound wealth? 

• Cities in the Greater Golden Triangle, where rental demand is high.
• Communities like Waterloo that cater to college or university students.
• Suburbs with strong, inflation-proof service sectors.
• Anywhere renters can easily find steady work.

Buying commercial property in Ontario to make a profit. 

Why You Need a Real Estate Lawyer

When you need home equity legal services, ask an Axess Law real estate lawyer (Ontario only). We take your lender’s mortgage refinancing information, and finalize legal paperwork you need to add a home equity loan to new or existing mortgages.

Investing the proceeds from a home equity loan in an investment property? Our virtual real estate lawyers conclude real property purchases by reviewing your agreement of purchase and sale. We add essential clauses that preserve your financial interests, and give you the right to walk away if an offer to purchase is unsatisfactory.

Business name registration (Ontario) for property owners.

Latent defects a seller fails to disclose in a SPIS (seller property information sheet), or doesn’t know about, can trip up your good deal. Axess Law real estate lawyers in Toronto, Greater Toronto Area, or Ottawa put your real estate deposit in a trust account until the deal concludes. If anything goes wrong, we make sure it’s returned, or refer you to trusted legal partners for advice on real estate deposit rules.

Close Investment and Commercial Property Sales Remotely

Axess Law has virtual real estate lawyers near you anywhere in Ontario. Our virtual real estate lawyers can close commercial, investment, or residential property deals remotely. We use only secure, confidential software for online transactions. You can sign closing documents online, or make a date to sign at one of our conveniently located Greater Toronto Area or Ottawa offices. If it’s more convenient, our licensed legal professionals can even courier documents to your home or office.

How virtual real estate lawyer services work. 

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in Greater Toronto Area, Ottawa, or by remote video conference. Our flat fee rates are affordable, and all inclusive (excluding taxes, disbursements, and third-party charges). Your final invoice includes no surprises, or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. You can get independent legal advice, or add a family member to a property for a modest title transfer lawyer fee. Axess Law offers you only the legal services you absolutely need. 

Find a real estate lawyer in Ontario. 

Book Mortgage Refinancing Appointments Online

Book appointments at times convenient for you using our convenient online booking form. We have Greater Toronto Area and Ottawa locations near you, or can go online with you day or evening to discuss your next real estate transaction. Our virtual real estate lawyers are available anywhere in Ontario. Call our 647-479-0118 lawyer line for appointments or toll free to 1-877-552-9377. 

Axess Law has onsite parking, and easy transit access.