Part One: Unlocking Your Property’s Hidden Value: The Power of Equity

Most real estate might appear to be comprised of four walls and a roof, but beneath the surface lies a hidden gem: your property’s equity. In this series, we’re simplifying the concept of property equity to introduce you to a potentially powerful tool—the Home Equity Line of Credit (HELOC).

A Home Equity Line of Credit (HELOC), also referred to here as a Line of Credit, grants you access to your property’s equity without selling it. Whether it’s your primary residence, a vacation home, or a rental property, a HELOC is one piece of the financial puzzle to increasing your net worth.  Please see our subsequent posts for more on its uses, but first, here’s how it works.

HELOCs differ from standard mortgages.  With a Line of Credit, you borrow only what’s needed, and interest accrues solely on the borrowed sum. Early repayment bears no penalties.  The rate is based on the Prime Rate plus a certain premium.  It should be noted the premium can change at any time and lenders can require HELOCs to be repaid at any time, but those changes and requirements are rare.  Some lines of credit don’t require a minimum interest payment as long as there’s room between the amount you’ve used and the limit.  There are some instances in which this might be useful though it’s best to maintain at least the interest due if possible.

On a property worth $800,000 with a mortgage balance of $300,000, the gap of  $500,000 signifies your equity—a valuable asset.  Should you qualify, lenders can offer stand-alone lines of credit with limits of up to 65% of the value of the property.   Lenders offering mortgages in combination with HELOCs will lend up to 80% of the value of your property as a combined balance.

In our example, 80% of the property’s $800,000 value is $640,000.  As such, your mortgage of $300,000 would leave $340,000 of your equity available as the limit on a line of credit for a total of 65% of the value of your property.  Some lenders will raise the line of credit limit in proportion to the amount you pay down on the mortgage side, to a maximum of 65% of the value of the property.  Once the mortgage in our example is paid to zero, the borrower would then have a line of credit limit of $520,000 available to them, equating to 65% of the value of the property.

A HELOC is more than a tool—used wisely, it can be stepping stone toward a more secure future. You can use it to fund renovations, make deposits on future properties to prevent having to rent between purchases, manage post-retirement finances, or address other expenses—all while retaining property ownership. Anyone who owns property should consider whether a HELOC might be an essential part of their financial portfolio.

Stay tuned for upcoming posts in this series, where further benefits and strategies to leverage this financial tool will be illuminated.  For more information, please feel free to reach out any time.

Image Credit: Tierra Mallorca on Unsplash

I am deeply saddened by the events of the wildfires and their impact on so many this year.  Dealing with the aftermath of a home or property lost to wildfires can be incredibly challenging. If this has happened to you, I express my sincere sympathy and hope these steps can be of some assistance:

1. Contact Your Lender: Notify your mortgage lender as soon as possible about the loss of your property. They will likely have specific procedures and information on how to proceed.
2. Insurance Claim: If you have homeowner’s insurance, initiate the claims process with your insurance company to cover the costs of rebuilding or replacing your property and its contents. Your insurance company will assess the damages and work with you on reviewing compensation.
3. Mortgage Payments: Discuss the situation with your lender. They may provide temporary relief, such as suspending or reducing mortgage payments during the recovery process. This can vary by situation but is worth asking.
4. Document Everything: Keep records of all your communications with the insurance company, lender, and any other parties involved. Document the damage, any expenses you incur, and any agreements you make noting dates and specific staff contacts’ information for each company.
5. Rebuilding or Relocating: Depending on your circumstances, you might decide to rebuild on the same property or relocate elsewhere. This decision will impact how you handle your mortgage, insurance, and interim living arrangements.
6. Tax Implications: Consult a tax professional to understand the potential tax implications of your situation. There could be deductions or other considerations available to you related to the loss of your property.

Remember, every situation is unique, and relevant steps will depend on your specific circumstances, mortgage terms, insurance coverage, and local regulations. It’s important to communicate early with your lender, insurance company, and relevant authorities to navigate this challenging time.  If I can be of any assistance, please don’t hesitate to reach out, I wish everyone affected the very best.

Image Credit: Julie Blake Edison  on Unsplash

If you happen to be carrying extra debt from credit cards or other loans (such as car loans, personal loans, etc.) you may benefit from simplifying and reducing your overall monthly payments, especially given rising costs in the current economic climate.  Rolling extra debt into a mortgage could be a great solution.

Consolidating other forms of debt into your mortgage has multiple benefits. This process allows you to pay off your loans over a longer period with smaller payments per month, and often at a reduced rate of interest when compared to credit card interest for example.  Credit cards often have higher rates of interest than mortgage loans do.

Not only does debt consolidation help with clearing up high-interest debt, it also makes your debt more manageable keeping track of fewer payments.

While debt consolidation through refinancing will increase your mortgage amount, lowering your overall payments and management can be well worth it when it comes to cost savings, time, and stress.  Please note, you need at least 20 percent equity in your home to refinance.

If you are looking for a way to simplify (or get out of) debt, please don’t hesitate to reach out to ask.  I am happy to review your financial portfolio as it relates to reducing costs and improving cash flow, and any other mortgage information you might need.

Adapted from DLC Marketing

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A quick review with your insurance agent can ensure your strata’s insurance policy aligns with your individual unit’s insurance coverage.  This can safeguard you from a potentially overwhelming and unexpected financial expense you shouldn’t have to worry about.

Condominium or strata insurance covers the entire building including common areas such as hallways and elevators.  It covers damage to individual units as well if for example there’s a leak due to an issue with the building’s plumbing system.  In that case, though strata insurance should cover repairs to the suite, the suite’s owner is obligated to pay the strata’s deductible for the claim.

As such, condo unit owners’ individual insurance policies typically include coverage to pay the strata’s insurance deductible as well as protection for their unit’s contents if such an issue arises.

However, strata insurance deductible costs have risen dramatically over the last several years in Canada, and condo owners unaware of the changes may not be adequately covered.  Historically, deductibles in strata-managed buildings averaged $25,000. In the event of an accident such as a flood or fire, the owner would have needed to pay $25,000 to have their unit repaired.  Strata unit deductibles can now range to $100,000 or more; adequate coverage is crucial.

If you are a condo owner and you’d like to ensure your unit’s insurance policy includes enough coverage to cover the deductible of the strata’s insurance, review them both with your insurance agent.  The strata can provide you with a copy of its policy.  Individual policies’ terms may vary.  Please reach out if you need a referral to an experienced home insurance professional for an opinion on yours.

Adapted from DLC Marketing

Image: Bisakha Datta on Unsplash