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What’s better for buying a second home: HELOC or personal loan?
– moneysense.ca
I am considering taking out a HELOC loan to buy another property. Is this a wise decision, or would a loan be better? My bank advises me that I can qualify for a $400,000 HELOC.
–Caren
When buying a second property, Canadians can choose from a number of financing options, including a home equity line of credit (HELOC), a mortgage, or a personal loan. Before you decide, it’s a good idea to consider practical matters including interest rates, cash flow, income tax, and more. Let’s dive in.
Interest rates for a second home
When you borrow money using a HELOC secured by the value of your home, the interest rate is typically prime plus a small premium of 0.5% to 1%. Today, that would mean an interest rate between 5.45% and 5.95%.
By comparison, variable-rate mortgages are usually offered at a discount to prime of maybe 0.5% to 1%. The interest rates for fixed-rate mortgages are currently in that range, too.
As a result, Caren, there is the potential to save 1% to 2% interest with a mortgage on the new property instead of a HELOC on your existing property…
Refinance today before you can’t tomorrow
– canadamortgagenews.ca
Alright, let’s talk mortgages. Because right now, for a lot of Canadians, that word “mortgage” isn’t exactly synonymous with “sweet dreams and financial freedom.” No, for far too many, it’s becoming a four-letter word that brings with it a whole lot of anxiety.
I’ve been in this business a long time, seen a lot of market cycles. But what we’re witnessing today is something else entirely. The sheer volume of people hitting their mortgage renewal dates with rates dramatically higher than what they signed up for just a few years back? It’s unprecedented. The “payment shock” isn’t just a buzzword; it’s a gut punch for a massive percentage of Canadian households.
Think back to 2020, 2021. Interest rates were practically giving money away. We saw fixed rates dipping below 2%, variable rates even lower. People bought homes, stretched their budgets, maybe even consolidated a little bit of debt with that sweet low-rate mortgage…
