Equity Take Out Mortgage Definition
Changes to the Canadian mortgage market has made equity take out mortgages and equity loans the same product.
We have kept this page for historical reference purposes.
An equity take out mortgage is a mortgage loan used to “take out” equity for other purposes. It may be used for repairs or renovations of the property, to use as a down payment for a vacation property, for investment in another area, or many other purposes. Because it is tied to property’s equity, the property owner must have equity in the property, after its fair market value and other mortgages are taken into consideration. An equity take out mortgage may contain a fixed rate and a fixed sum borrowed, or may be a variable rate and may be arranged as a line of credit, where funds are withdrawn at the discretion of the borrower.
Mr. McGillicuddy has a $300,000 home with a $100,000 in a first mortgage. Mr. McGillicuddy wishes to purchase a vacation home that requires s $30,000 down payment. Mr. McGillicuddy can obtain an equity take out mortgage for $30,000, secured by his home, to obtain the down payment. Because he has $200,000 in equity in the primary property, the equity take out mortgage may be permitted.
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Advantages of Equity Take Out Mortgages
Often, a borrower’s largest portion of net worth is in their home. If they have owned it for a number of years and the property has appreciated in value, they have often accumulated a great deal of equity. If the home owner requires funds for any purpose, an equity take out mortgage will usually make better financial sense than other means of borrowing as loans secured by property are usually offered at better interest rates than those secured by other means or unsecured entirely.
If the borrower obtains an equity take out mortgage in the form of a Home Equity Line of Credit, the borrower is not required to use the entire line of credit at once. For instance, if the borrower receives a $30,000 line of credit, the borrower may take only $10,000 at one time, and may obtain additional draws against the line of credit as needed. The borrower only repays, and interest is only charged, against the amount actually taken by the borrower, not the entire line of credit.
At First Foundation we have a number of equity take out mortgage products available. If you have substantial equity in your property and are considering borrowing against it, we will assist you in selecting the appropriate equity take out mortgage to meet your financial goals.
If you are interested in learning more about an equity take out mortgage, please feel free to contact us today!