Have you already purchased your first home and acquired positive equity? If yes, then congratulations, as you have built a home. Next, you might contemplate buying a second home in Kingston as a rental, investment property, or vacation home. Instead of getting a separate mortgage, you can use the equity on your first home to purchase the second residence.
The phenomenon of purchasing a second house with the first home’s equity is gaining popularity among Canadian citizens who choose to do it for enjoyment or investment. And you can join the bandwagon by roping in the top mortgage agent in Kingston for guidance. If you are not overextending your finances, purchasing another property with equity is an optimal strategy to build wealth.
How Can You Use The Equity In Your Home ?
Using home equity to buy another property is particularly feasible in a stable market. This is because the property you own (your home) functions as collateral for the new house. It is noteworthy to mention that using home equity to purchase another home in Canada is a wise investment, primarily when the latter is used as a rental or a vacation home.
As we have already mentioned, home equity is a valuable asset in the eyes of the lender. So, they will give you financing in exchange for equity as collateral. Often, you can use home equity-based lending to finance the down payment portion of your second property.
Two methods allow you to withdraw equity from your current property: mortgage refinancing and HELOC. The top mortgage broker in Kingston can offer guidance on both trajectories. Nevertheless, in this article, we will be focusing on HELOC.
Purchasing the Second Home with Home Equity Line of Credit
HELOC or Home Equity Line of Credit is a type of credit that uses positive equity in the residence you own as collateral. A HELOC is a revolving credit, meaning you can borrow as much or as little as you want as long as you do not exceed the approved credit limit. HELOC is a cash-out refinancing, meaning it encompasses two elements –
- You are refinancing the mortgage at the market interest rate and rewriting your loan balance for a larger amount.
- You have the option to draw cash against your property at a lower rate with your first home’s equity to purchase the second property. The option creates one mortgage on one property with a lump-sum payment at closing.
The HELOC way of using home equity to purchase a secondary property is ideal for those who want to make a down payment on a rental property that does not need any work. After you have an outstanding balance, you can pay it down whenever you want. First, however, you have to keep paying the interest. The top mortgage broker in Kingston can help you in wealth creation by enabling you to purchase a second property through HELOC.
So, the answer to the question of whether you can buy a second home with HELOC is a resounding yes. HELOCs are flexible and never disappear, unlike a loan. For a hassle-free property buying experience, get in touch with Leo Ragusa, the best mortgage agent in Kingston.