Buying a home is never easier than when you already have one to begin with! By simply tapping into the equity you’ve already built up in your home, you can borrow the funds you need for the down payment on your second home, whether it’s an investment property, a home for a child, or a vacation home. When you use a home equity line of credit or a home equity loan to buy that second property, it doesn’t matter what you’re using the property for. All that matters is that you have easier access to the funds you need in order to get it.
With either a HELOC or a home equity loan, you can borrow up to 80 per cent of the equity you have built up in your home. That equity is the amount of your home that you actually own; whether it’s through mortgage payments or because you’ve added value onto the home through home renovations. A quick way to do the math is to simply subtract the amount currently left on your first mortgage from the total value of the home. So, if your home is currently valued at $350,000 and you’ve paid $250,000 on your mortgage, you have $100,000 worth of equity built up in your home. Being able to borrow 80 per cent of that would give you $80,000. And, depending on the size and type of home that you’re buying, that would give you $80,000 for the down payment on your second home.
Many homeowners find that HELOCs work better for them when they’re using their existing home to buy a second one. This is because HELOCs are a revolving line of credit, meaning that you can draw from them and pay them back whenever you want. While the interest on these loans is typically due every month, the principal won’t be due until the end of the life of the loan. HELOCs can be especially good if the new home needs repairs, or if the owner thinks that they’ll need additional cash once they move in.
On the other hand, many find that home equity loans are a better option, as this gives you a large lump sum of money at the beginning of the loan, and it’s paid off like a traditional mortgage.
When you want to use your existing home to buy a second one, speak to a mortgage professional about obtaining a HELOC or home equity loan. They’ll be able to help you decide which one is right for you, and they’ll help walk you through the mortgage process on your new home, too!