Is an Equity Take-Out the Right Option for You?

Is an Equity Take-Out the Right Option for You?

If you’ve been a homeowner for many years, you may have substantial equity in your home.  While being in an “equity rich” position is nice, it may not always be the best use of your money. This is where an “equity takeout” mortgage can be very useful.  Simply put, an equity takeout is taking out the money you own in your property. It’s the value of your home less the amount of mortgage registered against it.

For example, if your home is worth $200,000 and you owe $100,000 on your mortgage, the equity, or the amount you own, is $100,000. Usually your property value will increase over time, which increases the amount you own.

An equity takeout can be used for different purposes, including:

  • Debt consolidation
  • Home improvements
  • Buying other properties
  • Purchasing other investments such as stocks or RRSPs
  • A child’s education

Once you’ve tapped into your equity, which can be up to 80% of the total value of the home, depending on your financial situation, the principal on the value of the home will increase.

For example, the principal on a property valued at $200,000 with a mortgage of $100,000 pre-equity takeout, will increase by the amount you decide to take out. If you opt for the entire 80%, you will now owe $160,000.

You can access your equity in a few forms: a fixed-rate mortgage, a variable-rate mortgage or a line of credit. Fixed and variable rates lock your mortgage into a term. The line of credit is more flexible, and the initial amount can be reused as you pay it down.

An equity takeout may not always be the best solution to your particular situation. Consider consulting with your mortgage professional. He or she can show you the various options and what the costs will be.

Guy Ward is a Mortgage Associate in Calgary, Alberta with TMG (The Mortgage Group Alberta).