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Equity – Using Equity to Buy Another House

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If you have equity in one or more of your properties which you would like to take out and put into good use such as investing (using equity to buy another house), paying down debts, renovating, using home equity to buy a second home, or to fund personal objectives, there are several strategies that you can use to access those funds.

There is no right or wrong way, and choosing an approach will depend on your particular situation, what you qualify for and any costs associated with the process compared to the benefits.

Here are the key strategies for equity takeout.

1. Home Equity Line of Credit (HELOC)

A HELOC is a line of credit that is secured against your property.

A line of credit can be setup individually on a property or in a second position after an existing mortgage.

The lender will require an appraisal and the amount of funds they lend you will be dependent on value

As equity accumulates into the property, you can go back to your lender and request and increase to the line. This is not done automatically, as you will have to submit a new application and qualify for the increase. Moreover, a new appraisal will be required.

2. Partial Refinance – Through a blend and extend

Another way to take out existing equity without impacting your existing mortgage is with a blend and extend strategy through the current lender that holds your first mortgage on the property.

Let’s say you a have a property that is worth $500,000 with a first mortgage in the amount of $300,000 at a rate of 2.99 per cent, maturing two years from now.

Your property has increased in value since you purchased it, as you bought in a high-demand area, and you completed some strategic renovations that helped to boost the value. You would like to access some of this equity to buy another property.

Assume that the lender’s mortgage rates today are 2.79 per cent for the three-year fixed and 2.89 per cent on the five-year fixed.

If the appraisal comes in at $500,000 and you qualify based on the lender’s guidelines, the lender will give you 80 per cent of the appraised value in funds; which equates to $400,000.

Since you currently have a first mortgage of $300,000 with the lender, this means that you now have access to an additional $100,000 in funds.

If the lender offered HELOCs or secured lines, they can definitely give you the $100,000 in that form, but another option would be in the form of a mortgage.

The lender can set up a separate first mortgage for $100,000 at the rate and terms you choose.

If you choose the three-year rate, your effective blended interest rate on the total funds can be calculated as follows:

($300,000 x 2.99% + $100,000 x 2.79%) / $400,000 = 2.94%

3. Full mortgage refinance

A full refinance means that you are looking to take out equity by breaking the current mortgage and increasing its current balance by the amount you are taking out.

If your mortgage is up for renewal or there are minimal or no penalties associated with breaking the mortgage, a refinance is an option to consider.

Refinances offer an opportunity for consolidating any non-secured debts, negotiating better interest rates with your lender and shopping for cheaper rates and better terms.

4. Equity takeout beyond what traditional lenders offer

The maximum equity takeout with traditional lenders (including banks, credit unions and trust companies) can be done through a refinance up to 80% of the appraised value of your property.

Any equity take out above the 80 per cent can be accomplished through private funding. You may be able to take out 90 per cent through private funding, depending on your personal situation and the location and/or condition of the property.

Should I choose a home equity loan or a HELOC?

Source: www.bankrate.com
 

If you’re confused as to which product will better suit your needs, ask yourself the following questions:

 
Q: Do I need the money in a lump sum or in several instalments?

A. If you need it in a lump sum, you should lean toward getting a home equity loan. If you need the money in instalments, lean toward getting an equity line of credit

 
Q. Is it for a long-term or short-term purpose?

A. If the money is to be spent on something that will last a long time, such as a roof or a car, an equity loan might be better. If the money is to be spent on something that won’t last long, such as a semester in college or a wedding and reception, you should think about getting an equity line of credit.

 
Q. How much of a monthly payment can I handle?

A. A home equity loan requires you to pay principal and interest every month for the life of the loan. A home equity line of credit allows you to pay just the interest for several years, if that’s what you want to do. It’s a whole other question whether it’s a good idea to pay only the interest, and not the principal, for an extended period.

Our mortgage calculator can provide a more detailed picture as to how much you can borrow over how long.

 
Q. Would a line of credit tempt me to use the money carelessly?

A. Naturally, if you answer this in the affirmative, you should consider getting a home equity loan because you pay off the principal and interest over time, and it’s not a revolving credit account.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

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Victoria real estate agent disciplined for false advertising, encouraging cash deal to avoid taxes

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A Victoria real estate agent is facing $9,000 in fines and a 60-day licence suspension after breaking several professional rules during the sale of her father’s half-million-dollar property, according to a decision by the Real Estate Council of B.C. 

Whitney Garside’s missteps — outlined this week in a disciplinary decision posted on the council’s website — included falsely advertising the property as being almost twice its actual size and advising the buyer they could avoid the property transfer tax if they paid cash directly to the seller.

The property on Burnett Road in Victoria was being sold in 2016 by the real estate agent’s father. That relationship was disclosed and isn’t among the reasons she has been disciplined.

According to the disciplinary consent order, Garside told the buyer — whose name is redacted — that by paying $42,000 cash on the side, the value of the property could be reduced to avoid paying the property transfer tax.

That cash arrangement was not shared with Garside’s brokerage, Re/Max Camosun, a failure that contravened the Real Estate Services Act.

The council also ruled that she “failed to act honestly and with reasonable care and skill” when she advised the buyer the property transfer tax could be avoided by paying cash directly to the seller. 

The council’s discipline committee also found that Garside committed professional misconduct when she failed to recommend the seller and buyer seek independent legal advice, specifically regarding the property transfer tax and the cash agreement.

Another issue the council considered professional misconduct involved the size of the property in question.

The council ruled that Garside published false and misleading advertising and failed to act with reasonable care and skill when the property was advertised as 8,712 square feet, when in fact a portion of the lot belonged to the Ministry of Transportation, and the actual size was just 4,711 square feet.

The discipline committee ordered Garside’s licence be suspended for 60 days, which will be completed Jan. 3, 2021.

She has also been ordered to complete real estate ethics and remedial classes at her own expense.

Garside was also fined $7,500 as a disciplinary penalty and $1,500 in enforcement expenses.

She agreed to waive her right to appeal the council’s discipline committee’s decision in September.

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Frisco apartment community sells to Canadian investor

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A Canada-based investor has purchased a Frisco apartment community as part of a larger Texas deal.

The 330-unit Satori Frisco apartments opened last year on Research Road in Frisco.

BSR Real Estate Investment Trust bought the four-story rental community that was built by Atlanta-based Davis Development.

Satori Frisco was more than 90% leased at the time of sale. The property includes a two-story fitness center, a car care center, a dog park and a resort-style swimming pool.

The Frisco property sold along with Houston’s Vale luxury apartments in a deal valued at $129 million.

“BSR recently exited the smaller Beaumont and Longview, Texas, markets and also sold noncore properties in other markets,” John Bailey, BSR’s chief executive officer, said in a statement. “We are now using our strong liquidity position to invest in Vale and Satori Frisco, modern communities in core growth markets with the amenities our residents desire.”

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House prices on Prince Edward Island continue steady climb

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Residential real estate prices on Prince Edward Island continue to climb at a rate higher than the national average, according to the latest report from a national organization. 

The Canadian Real Estate Association released monthly figures for November 2020 on Tuesday.

They show that the average price for a resale home on P.E.I. is about 21 per cent higher than it was a year earlier. 

Only Quebec had a bigger year-over-year increase, at about 23 per cent. Overall across Canada, prices were up 13.8 per cent year over year in the ninth month of the COVID-19 pandemic.

“For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019,” the report noted.

“Meanwhile, an ongoing shortage of supply of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.”

That lack of houses coming onto the market compared to the demand means that in those provinces, there is “increased competition among buyers for listings and … fertile ground for price gains.”

There have been anecdotal reports for months that Prince Edward Island’s low rate of COVID-19 infection and looser rules around social activities have been encouraging people to buy homes on the Island. 

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