Achieve your long-term financial goals with your home equity

Achieve your long-term financial goals with your home equityYour home has the potential to build your personal wealth over the long term. If used prudently, a home equity line of credit (HELOC) can help you reach your financial goals.

But with a HELOC, you might be tempted to use your home as an ATM. You need a plan to use this line of credit wisely, and be aware of potential risks.

Home ownership can be a great long-term investment strategy, especially if housing prices rise. Your mortgage debt goes down, because you make regular payments against both the interest and the principal borrowed. This increases your home’s equity — the difference between what you still owe and the value of your home. A HELOC lets you borrow against this growing equity. With this form of debt, you can delay repaying the principal balance as long as you cover the interest each month. However, this short-term credit advantage can mean a long-term debt problem.

Ask yourself if a low interest rate and easy access to credit may encourage you to spend more than you can afford to pay back and jeopardize your long-term financial security. For example, if interest rates continue to rise, will you have trouble keeping up with your payments?

Avoid a debt spiral where you could find yourself using additional home equity just to stay current on your mortgage. Here are some tips:

Establish a repayment plan. Try setting aside a portion of your HELOC in a sub-account with a fixed-term repayment schedule, so you pay more than just the monthly interest.

Develop a plan for how you will use a HELOC. This includes making a realistic budget for any home renovation projects you are funding.

Create an emergency savings fund. Using a HELOC for an unexpected circumstance, like job loss, carries risks if you need to use it to cover your monthly bills for an extended period of time. What you need is an emergency cache.

Learn more about HELOCs and find useful financial planning tools online at canada.ca/it-pays-to-know.

Renegotiating your mortgage?

Renegotiating your mortgage?There’s so much to think about when renegotiating your mortgage. You may be shopping around for the best rate, you may have to pay fees to switch lenders, and your bank will likely offer you a readvanceable mortgage.

Some banks bundle other financial products, like car loans or credit cards, together under a readvanceable mortgage — a term mortgage combined with a home equity line of credit. This is typically offered at an attractive interest rate.

While a readvanceable mortgage has its benefits, be aware of the fees that apply and the risks of tying different credit products together before signing on the dotted line.

HELOC debt is different than other forms of debt. Unlike a credit card or unsecured line of credit, a HELOC is secured by using your home as collateral. While HELOC interest rates are often lower than other forms of credit, they are variable. At any time, banks can demand that you repay your HELOC or increase your interest rate. If you can’t pay back the money you owe, you may lose your home or have no choice but to sell it.

Compared to a home equity loan — a lump sum loan with a fixed interest rate, term and repayment schedule — a HELOC works more like a credit card. Your available balance decreases as you borrow and increases as you pay it back, up to a certain credit limit. Some HELOC credit limits increase automatically as you pay down your mortgage.

To switch lenders the next time your mortgage is up for renewal, you may first need to repay all credit products tied together under your readvanceable mortgage. And there are additional legal fees you wouldn’t incur when moving a traditional mortgage.

When deciding your strategy, think long-term. Are you planning to use your home’s equity to fund your retirement? How long do you plan on staying in your home? How will you use your HELOC — for renovations, to invest, to consolidate higher interest debt, for emergencies, for a second home, for a vacation? How would interest rate hikes, job loss or illness impact your ability to repay your debt? Would a HELOC tempt you to use your home like an ATM?

If a HELOC is the right product for you, stick to a plan to pay it off fully and avoid continually borrowing against your home’s equity. Learn more online at canada.ca/it-pays-to-know.

Moving? How to find the right neighbourhood

Moving? How to find the right neighbourhoodThe search for the perfect house begins with the search for the perfect neighbourhood, which can be daunting. Searching for something so open-ended and with so many variables can be an overwhelming task, but it doesn’t have to be. You just have to know where to start your search and where you can take it from there. Get ready to find that dream neighbourhood.

Search yourself. You can’t really know what to look for in a neighbourhood until you know exactly what you want. Make a list, take your time. Write down the things that really matter to you. Decide priorities. Order your list from most to least important. Moving in with your partner? Have them do the same, and see where your priorities line up and where you diverge. Now that you know what you want, it’s time to go get it.

Search the streets. Don’t underestimate the importance of this step. You really can’t know a neighbourhood until you’ve walked its streets at several different times of day. Get a feel for the level of traffic and noise, decide if you’re okay with it. See how the streets feel. Are they lit enough at night? Would it be nice to go for a run through your neighbourhood? Make sure you visit each of your candidate neighbourhoods.

Search the stats. While you hunt at street level, make sure you take your research to a bird’s-eye view at the same time. You would be amazed at the kinds of things you can learn about a neighbourhood just from its census data. How old are people there? How many kids are in the neighbourhood? How many people are home owners? How much are the average monthly costs to live there? What languages are spoken in the neighbourhood? Combine your research with your street-level hunting and you’ll soon find yourself walking through the perfect neighbourhood for you and your family.

Find more information at www.statcan.gc.ca/census.

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Deciding who to hire for your renovation

Deciding who to hire for your renovationYou’ve been planning your home renovation for months, attended all the home shows and spent countless hours online looking at inspiration boards and photos. You’ve also interviewed numerous contractors, checked their references and received written price quotes from those you are interested in hiring. Now it’s time to decide who will be doing the job.

Once you have met with the contractors who are bidding on your job, you should review each set of bid documents carefully. Compare every aspect of their bids — the description of the work, specifications (materials and products), price and allowances, deposit and payment milestones, project schedule and any additional recommendations or ideas.

While overall price is important, it is only one factor. Many homeowners who have successfully completed major home renovations speak about the importance of peace of mind and working with a renovator they trust and feel confident in.

If you have a particularly strong sense of confidence in one of the renovators, they are probably your best choice, even if their price is not the lowest. In the end, you should choose the renovator based on your sense of the overall value they can provide.

If any prospective contractors suggest they can offer a better price if you pay them in cash and skip the paperwork, you should eliminate them from further consideration. They are essentially saying they cheat on their taxes and lie to the government, and you shouldn’t expect they will treat you any better. You may also be implicated in future audits.

Before you hire a contractor, get informed. The Canadian Home Builder’s Association offers free unbiased information on how to hire a contractor the smart and safe way. Find more information at www.getitinwriting.ca.

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What millennials want in a home

What millennials want in a homeWhen entering the residential market, it’s important to appeal to as many people as possible, especially young, first-time homebuyers. They’re one of Canada’s fastest-growing markets, but their tastes and priorities are quite different.

“The next generation of first-time homebuyers knows exactly what they want in their first major investment,” explains Christopher Alexander, regional director at Re/Max Integra. “Sellers need to be strategic before putting their home on the market to appeal to these needs.”

Here are the top three factors influencing millennials’ purchasing behaviour:

Location, location, location. It’s widely known that finding a home in the right neighbourhood can significantly increase ROI long-term, and millennials are taking extra note. But homes in communities where new schools and amenities are being built are attracting young buyers looking for “what’s next,” rather than what’s hot now. Up-and-coming neighbourhoods that are slated to receive investment from the city or are under redevelopment are prime for real estate investments as smart millennial buyers realize their value will only continue to rise. If the neighbourhood is walkable, that’s a bonus.

Smarter living. With exciting advancements in the ever-growing tech industry, preparing your home to appeal to a hyper-connected millennial market is easier than ever. From installing fridges that text you when you’re low on milk to wireless light switches, sellers who make even a small investment in a smarter home will instantly attract tech-savvy first-time buyers. Adding innovations such as a programmable thermostat will not only make your home appealing to the eco-conscious young buyer — the remotely adjustable tech can also help lower your utilities bills as you wait for your closing date.

Looking ahead. As a home is typically the first major investment most millennials make, it needs to be able to suit their growing list of needs. While young buyers may not have children now, many are already considering multi-bedroom homes and properties with backyards in anticipation of a soon-to-be expanding family. Investing in backyard landscaping and clearing out clutter to make space for a possible play area or nursery is a great way to appeal to young families looking for a home they can see themselves grow in.

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Questions every homeowner should ask about their property

Questions every homeowner should ask about their propertyDid you know that homeowners are responsible for the maintenance and replacement of service lines on their property when they fail? The costs associated with digging up, repairing or replacing service lines can run into thousands of dollars. More than that, any damages to trees, shrubs and driveways due to repairs must be paid out-of-pocket by homeowners.

Alarmingly, many homeowners are not aware that service line failures — including water, sewer, septic, electrical and telecommunications lines — are not covered by most home insurance policies.

“Every homeowner needs to be knowledgeable on what they’re covered for and what they’re not,” advises Isabelle Bientz, insurance expert from Aviva. “Most service lines run underground, making it easy to forget the importance of getting them checked for repairs. A lot of homeowners are also not aware that they own the outdoor service lines from their property line to their house, and behind their house to a well, septic tank or out-building.”

Before the unexpected break, leak, tear, rupture or collapse occurs, homeowners need to ask themselves these questions about their service lines:

1. How old are your pipes? The average lifespan of water pipes is 25 years, but the average age of pipes in many areas in Canada is over 50 years old, and several municipalities have water systems of comparable age. Knowing the age of your own water pipes will help you determine whether they’re due for a repair or replacement.

2. What are your pipes made of? Depending on what your pipes are made of, the life expectancy will differ. It’s important that you check the material of your sewer and water pipes in order to make an educated assessment, or consult an expert to see when they’re due for a repair or in need of a replacement.

3. Do you have mature trees near your property? If you own a home with mature trees on or near your property, the roots could cause serious damage to your service lines. Clay pipes, which are most commonly used to build water and sewer lines in older homes, can be easily penetrated and damaged by tree roots. If you suspect a tree root problem, contact a professional to investigate before the situation worsens.

Not sure if you need coverage for your service lines? Find more information from your insurance broker or online at www.avivacanada.com.

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How mortgages have changed

How mortgages have changedIf you’re like millions of Canadians, you’re busy paying down your mortgage. It could take 25 years or so, but it can be a great way to accumulate personal wealth, especially if house prices rise. However, with changes to mortgages in recent years, it’s important to understand just how they are different if you want to fully benefit from your home’s potential to build your personal wealth over the long term, rather than your debt.

Today, to finance your house most banks will offer you a readvanceable mortgage if you have a down payment of 20 per cent or more. It combines a traditional mortgage with a home equity line of credit (HELOC). There’s a big difference between these two forms of debt.

First, your mortgage debt only goes one way — down — because you must make regular payments against both the interest and the principal borrowed. This increases the equity you have in your home, meaning the difference between what you still owe and the value of your home.

But as you pay down your mortgage, a HELOC lets you borrow against your growing equity as part of your mortgage. Unlike your mortgage, you only have to make regular payments against the interest. You can ignore the principal until you sell the house. This short-term credit advantage can mean a long-term debt problem.

With flexible repayment terms, low interest rates and a credit limit that rises with your equity, a HELOC can be used to pay off other, higher-interest debt or home renovations.

But would a HELOC tempt you to use your home like an ATM? Mounting HELOC debt could put you at increased risk if you lose your job, get sick or injured, interest rates go up or your home decreases in value. If it consumes too much of your equity, you might end up owing more than your home is worth, lose your home or have to sell it to pay down your debt.

To use this borrowing tool wisely, stick to a plan to pay it off fully and avoid continually borrowing against your home equity.

Learn more online at canada.ca/it-pays-to-know.

www.newscanada.com