How to Use Home Equity to Your Advantage

Date Posted: May 15, 2024

Canadians purchase homes for a variety of reasons. Some want the stability of owning their own home, while others also look at home ownership as an investment vehicle. No matter what the reason, the truth is that home ownership has proven itself to be a good stable investment over time, and one which many Canadians are profiting from.

In years past, many saw their homes as a shelter of safety, yet today, they are more than ever before willing to borrow against the equity owned in their homes to further their investment portfolios, get out of debt, send their children to university, make improvements to their home, or even boost their RRSP contributions. Where home equity was once sat upon, today it is something to be tapped out and used to one’s advantage.

While tapping the equity in your home can be a good idea, you should do so with caution and understand any of the possible consequences. The best thing you can do is consult a licensed mortgage professional and financial planner to discuss opportunities to make your home’s equity work for you.

Here are some ways you can use your home’s equity to your own advantage.

1. Home Equity Line of Credit (HELOC):
   • A HELOC enables you to borrow against your home's equity, akin to utilizing a credit card.
   • Access funds as required, with interest payments applicable only on the borrowed amount.
   • HELOCs provide flexibility and can be utilized for home renovations, debt consolidation, or unforeseen expenses.
2. Cash-Out Refinance:
   • Through a cash-out refinance, you replace your existing mortgage with a new one, obtaining a higher loan amount than your current outstanding balance.
   • The surplus between the new loan and the previous one is disbursed to you as cash, which can be employed for various purposes.
   • This option is beneficial for consolidating high-interest debt, funding significant purchases, or investing in property enhancements.
3. Home Equity Investment:
   • Consider leveraging your home equity to invest in income-generating assets, such as rental properties or equities.
   • By tapping into your home equity, you may potentially attain a superior return on investment compared to your mortgage interest rate.
   • Nonetheless, thorough risk assessment and a robust investment strategy are imperative.
4. Emergency Fund Establishment:
   • Allocating a portion of your home equity towards establishing or bolstering an emergency fund can furnish financial stability during unexpected circumstances.
   • Reserve a segment of your home equity in a liquid account, accessible in the event of job loss, medical emergencies, or other financial exigencies.
5. Debt Consolidation:
   • Integrating high-interest debt into a home equity loan or line of credit can mitigate your overall interest rate and monthly obligations.
   • Through debt consolidation, you can streamline your financial affairs, alleviate stress, and expedite debt repayment.
6. Home Renovations:
   • Deploying home equity towards renovations or enhancements can augment your property's value and enhance your standard of living.
   • Focus on projects with optimal return on investment, such as kitchen overhauls, bathroom upgrades, or eco-friendly renovations.

To find out how you can use your own home’s equity. Contact your mortgage broker today.