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You have a savings account, have contributed to RESPs for your child’s education and have life insurance. Sometimes all the planning in the world can’t account for those unexpected major life costs. Let’s look at the pros and cons of using equity in your home can help you manage those financial burdens.

Old fashioned savings, especially with regards to post-secondary education through RESPs, is usually the best way to handle many of life’s major costs but often these expenses turn out to be more than expected and require more money than you might have. Or, sometimes expenses come at you when you are least expecting them. Think broken car, unexpected engagement, pregnancy, illness… sadly, the list goes on.

Using equity in your home is often the least expensive way to borrow money, at least from an interest rate perspective. Banks have the security in the property you own, which limits their risk, enabling them to often offer a loan at lower rates then you would see with credit cards, instalment loans or unsecured lines of credit.

Pulling from investments is another way to cover these costs, however many financial experts argue that if you are making 6 to 9% on your investments and only paying 3 to 5% on your secured mortgage or line of credit, plus factoring in the tax benefits from your investments, it makes financial sense to borrow the money required and keep your investments intact.

Important factors when considering borrowing against the equity in your home:

  • Repayment schedule
  • Current mortgage vs current value in your home
  • Credit worthiness / credit score
  • Required loan flexibility
  • Urgency of loan
  • Identifying other higher interest debts or upcoming expenses to consider including in the loan
    Determining whether to refinance your existing mortgage, add a second mortgage or a secured line of credit is something you should work out with your trusted mortgage broker before committing or signing on the bottom line. There are many long-term factors that could come into play and working with someone who understands your long-term goals is key to ensuring you are making the right decision at this time.

    My Tip: If you can, try to put money aside to help finance those unexpected expenses that come up. Even a little bit can alleviate some of the stress that having to refinance or borrow against your mortgage can cause. However, if you do have to borrow against the equity in your home, make sure you are working with your mortgage broker to ensure the rates and the terms are the best for you.

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