Suppose a borrower is not wanting to refinance their home or property out of caution of increasing their current home loan (i.e., mortgage) debt, or the borrower does not want to take on a second mortgage. In that case, there are two ways that borrowers can access funds from their home’s equity without it drastically impacting their current mortgage.
Personal loans. A home’s equity can be used as collateral when taking out a personal loan. How much equity the borrower already has in their home determines the amount they qualify for their line of credit. Personal loans are usually short-term, but a borrower can expect competitive rates with a great credit score. However, if a borrower is contemplating this route, a personal loan backed by a home’s equity is essentially the same as taking out a second mortgage or refinancing their existing home loan. Rather than the borrower looking for a new lender to back a personal loan on their home’s equity, it may be in the borrower’s best interest to remain with their mortgage broker and increase their repayments through refinancing or have a similar experience with a second mortgage that they would have had with a personal loan.
Equity-backed line of credit. The most convenient method for a borrower to unlock their home’s equity is turning it into a line of credit. Their current mortgage broker can link the credit line to the borrower’s banking account, or the borrower can open a new account to have funds funneled into it. Regardless, a line of credit can be used in the same ways as a credit card, such as making online or in-store purchases. No matter how much credit is used, funds taken from the line of credit will be added back to the mortgage with interest. In other words, the borrower can stay with the same mortgage broker to access the benefits of their home’s equity with a line of credit.