Using your home's equity to upgrade your home.

​As a result of the pandemic, most homeowners are spending more time at home, resulting in an increased desire to make home improvements. Some homeowners have savings set aside for renovations, while many others have most of their assets tied up in the equity of their home. Home equity is the homeowner’s interest in a home, and the equity increases as the homeowner pays down their mortgage principal, and as the home increases in value. With mortgage interest rates at historical lows, here are two common ways that homeowners access their equity to complete home renovations.

1. Home Equity Line of Credit (HELOC): A HELOC is a line of credit that is secured to the property and comes with a much lower interest rate compared to the rates associated with unsecured lines of credit. Depending on the lender, the available equity, and how the lender originally set-up the mortgage, a homeowner may be able to have access to a HELOC without visiting a lawyer or registering a new charge against the property. A HELOC is an excellent way to have immediate access to the home’s equity without having to pay any interest until it is used.
2. Refinance: If it will take a while to pay off the cost of the renovations, or if the mortgage was not set-up with the ability to easily add a secured line of credit, then a refinance could be a viable option. Up to 80% of the home’s value can be accessed, meaning the combination of the mortgage and the equity taken out cannot exceed 80% of the home’s value. The new mortgage pays out the original one, and any extra equity can be used to consolidate other debts or be taken out as a lump sum. Some lenders will let you set up a new mortgage, HELOC, and take out a lump sum up to the total of 80% of the home’s assessed value.

A qualified mortgage professional will be able to advise if the timing to access the equity makes sense. Depending on the type of mortgage the homeowner has, refinancing requires can result in a prepayment penalty. The penalty amount is based on a combination of several different variables: the lender, the contract interest rate, the current mortgage rates, and the months remaining in the term. Most of the time the refinance transactions require an appraisal and a lawyer, however some lenders cover the fees or reimburse the homeowner after the transaction is complete.


While taking out equity can be beneficial, a qualified mortgage advisor can review the home and mortgage details and offer professional advice based on all available options.