Equity Takeout Vs Mortgage Refinance What you should know.
Contemplating an equity takeout vs mortgage refinance is simple once you gather the correct information.
What to consider when looking at refinancing your mortgage
A second consideration would be your current rate you are locked into and today’s best rate offered by your bank.
Step 1: determining if your 1st mortgage is a fixed or variable.
Step 2: determining how long is left in the term of your 1st mortgage
Step 3: determining what the penalty is to break your 1st mortgage
The Costs of refinancing your mortgage
Consider using a mortgage penalty calculator to get an idea of what it would cost to break your 1st mortgage. The largest cost is usually associated with a fixed rate mortgage and the payout penalty; interest differential penalty (IRD) or Three-month interest penalty.
Once you have determined the cost of breaking your 1st mortgage you can start to evaluate if there will be savings in a 1st mortgage refinance.
Additional Costs of refinancing your 1st mortgage
The costs of refinancing your home are many. After determining the penalty there are Discharge fees, Legal fees, Appraisal fees and more.
Home Equity Loan or HELOC
A Home equity loan or 2nd mortgage can mean two things. Either a HELOC up to 65% through a bank. (you must income & credit qualify for this style of mortgage) or a straight equity lender which is not focused on your income or credit rather they rely on the equity in your home. These lenders lend up to 75% of your homes value in major centers.
Cost of a Home Equity LOC or HELOC
HELOC or home equity line of credit is an affordable solution but not all banks offer the product. HELOC maximum loan to value is 65%. You must income & credit qualify. Costs for HELOC are generally legal and appraisal costs and if it’s a strata additional documentation will be required.
Cost of a Home Equity Loan or 2nd Mortgage
Costs of a home equity loan or 2nd mortgage are appraisal costs, legal costs both for the borrower & lender as well as broker &/or lender fees on top of a higher interest rate.