What Else Can A Mortgage Do?
When we speak in everyday terms about mortgages, we often do so with a bit of tunnel vision. Mortgages are often mistaken for being fairly cut and dry when it comes to purchasing a home. When a buyer cannot afford the full purchase price of their home (and they rarely can), a bank or other financial lender will offer a mortgage against the property, repayable with interest, to allow them to meet the purchase price.
Yet that is far from the only purpose of a mortgage. A mortgage is simply a loan secured (registered on the title of) against real property; in other words, a loan borrowed against a home and the land that it is on. What these loans are used for and when these loans are taken out can vary significantly depending on the borrower’s circumstances.
We routinely assist clients who are looking to put their mortgage to different uses, and want to take a closer look at refinancing. We also help clients connect with different professionals who can assist in ways that lawyers do not - for more information regarding who can help you beyond our office, please check out our blog called Bridging The Gap: The Benefits of Using a Mortgage Broker
What Can Mortgages Do Beyond Help Purchase A Home?
Using mortgages for a variety of reasons beyond purchasing your first home is a significant part of our practice.
As hinted above, home owners will renegotiate mortgages for a variety of different reasons, but one of the most popular reasons is that the term (normally five to ten years) of the mortgage they got when they purchased their property has come to an end, and the borrower still owes thousands of dollars to the bank. On top of that, the value of their home has increased significantly and they can also use the additional equity to take out more cash to pay off debt, complete their dream renovations, or put their kids through school.
Beyond using funds to purchase a property, mortgages are used for three other main purposes - namely Refinance, Equity take-outs, Bridge Financing which we will explore in more depth below:
Refinancing
Basically and plainly, refinancing means to renegotiate the terms of your mortgage including but not limited to the sum you borrow against the property, the interest rates you pay on the mortgage and how they get applied to the mortgage, or the length of time you have to repay the mortgage.
If the mortgage has matured, there will be no penalties to refinancing (although there may be administration costs associated with removing the mortgage from title).
If the mortgage has not matured, there may be penalties for changing the terms of the mortgage before the mortgage matures. It will be up to you to do the math to determine whether it will be beneficial for you to change during the life of the mortgage.
If you have doubts, please speak to your mortgage specialist at your bank of choice or your mortgage broker.
Equity Take out
This form of borrowing builds on the definition of Refinancing outlined earlier. Refinancing can allow you to increase the loan you borrowed originally and allow you to take out liquid cash. Imagine it like using your home as an ATM.
This option is frequently used to help borrowers cover major life expenses such as household renovations, post-secondary education, or debt consolidation, for example.
When you apply for an equity take out loan, it will be important to be open and honest with your mortgage specialist, broker, or lender about your reasons for taking out the cash.
Specifically, if you are taking money out for renovations, the lender will want to know your plans. Their job is to help you budget to ensure the project is financed properly in order for you to complete your plans, increase the value of your home, and avoid any mishaps such as running out of money. If you max out your budget and wind up with half-finished renovations that are ultimately unlivable, you may have inadvertently caused the value of your home to decrease.
Bridge Financing
So you already own a home, you want to move, but you don’t have money on hand for the downpayment of 5% to 20% until you actually sell your first home? No problem! Speak to your bank, mortgage specialist, or broker about bridge financing.
This option results in you owning two homes for a short period of time. The bridge loan gets registered against your first home while you wait for it to sell. It gives you the money for the downpayment on the new home. Once the first property sells, you pay it back immediately.
How We Can Help
As mortgage lawyers, we play an important role in facilitating this refinancing and explaining to you the parameters of the mortgage you choose to get. Just as you needed a lawyer for your initial purchase, you’ll need a lawyer to help you understand your new mortgage.
We have helped thousands of clients use mortgages for a variety of reasons above and beyond purchasing their first, and these sorts of victories are rewarding each and every time.
Contact Sari Rose Law next time you need a mortgage lawyer. We speak mortgage fluently, and will guide you through the legal aspects of your transaction step by step so that you not only know your numbers, but you also know what lies again. Contact us today to set up a consultation.