More and more Canadians are starting to purchase second homes; and as the number of retirees grows, so too will the number of second homes that are purchased. So, if you’re one of those Canadians looking to soon by a second home, how can you pay for it? One option is to simply save up the cash for that down payment. But a better method might be to use home equity credit, or home refinancing.
A home equity line of credit is a revolving credit line that will allow you to borrow against your home equity and take out the amount you need. These lines of credit are often a popular choice for those buying a second home because they can still be used once you’ve moved into the home. This can especially convenient for things like setting up utilities, which can sometimes be costly; or for making repairs on the second home that was just purchased. With a home equity line of credit, you can take money out and repay it whenever you can, with only the interest being due every month. With a home equity line of credit, you will be able to borrow up to 80 per cent of the equity that’s accumulated in your home.
Home refinancing is another option that can also allow you to borrow up to 80 per cent of the equity in your home. With a home refinance you can change your existing mortgage into an entirely new mortgage, and you can borrow a higher amount than the original mortgage and get that extra cash at the time your new mortgage is finalized. This is called a cash-out home refinance. That additional cash can then be applied to the down payment on the second home.
Whatever option you use for borrowing against the equity in your home, it’s important that homeowners don’t only worry about their new down payment that’s needed, but the new mortgage payments as well. Of course this is something that homeowners will be thinking of when they first start thinking of buying a second home.
It’s also important for homeowners to know that when buying a second home, the homeowner or a family member must live in it as the primary resident. While it’s okay for the property to be rented out temporarily, investment properties are different than second homes, and the mortgages for them can work differently too. If you’re buying a home so that you can rent it out, you must tell the mortgage professional that you’re working with, so that your mortgage for the property can be properly handled.