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  • Dave Fullerton

Your Best Short-Term Financing Options

As a homeowner, you likely know all too well the financial cost of making home improvements. Whether replacing a roof or upgrading your landscaping, these renovations can add up – but that doesn’t mean you have to be stuck with an empty wallet for years.


If you're looking for funds in the short term that won't break the bank, several options are available to ensure you get the financing necessary without sacrificing long-term savings goals. In this blog post, we'll explore some of your best short-term financing options to make costly house projects more manageable and maintainable every season.


What is short-term financing?

Short-term financing – credit or loans that are designed to be paid off in a short period – can be a valuable financial tool in a variety of different situations, such as:

  • Bridge financing: If you're planning on moving and have found a new home before selling your existing one, you may need a short-term loan to make a down payment on the new place.

  • Seizing an investment opportunity If an opportunity arises, a quick injection of cash will enable you to take advantage of it.

  • Consolidating debt: If you have multiple different loans, you can consolidate them into one single loan if you find one with a lower interest rate.

  • Covering unexpected expenses: Accessing short-term cash will let you cover unplanned expenses, such as paying off medical bills or helping out an adult child during unemployment.

But what are the different types of short-term financing options? And how do you know which is suitable for your situation?


What are my options?

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit secured against your home, typically allowing you to borrow up to 80% of your home's value.

Pros:

  • Interest rates are typically low, and you have the flexibility of when you pay it off.

  • You can access portions of the approved sum at different times, and you only pay off and pay interest on the amount you access.

Cons:

  • Retirees can find it hard to qualify, especially if they don't have a regular income or a strong credit score.

Private Loan or Mortgage

These are loans which typically have a period of one year.

Pros:

  • They're usually relatively easy to qualify for if your home has enough equity.

Cons:

  • Set-up fees and interest rates are typically high.

Short-Term Installment Loan

These are loans in which set amounts are repaid at regular intervals for the term of the loan.

Pros:

  • You can pay it off in installments rather than all at once.

Cons:

  • Unlike a credit card or line of credit, you can't access portions of the approved sum at different times.

  • They can include hidden prepayment fees.

Payday Loan

A payday loan is a short-term loan characterized by very high interest.

Pros:

  • They are usually easy to qualify for, and you can often access them even if you have a bad credit score.

Cons:

  • Interest rates are incredibly high, often exceeding 300% over a year.

Convertible Mortgage

These are short-term mortgages, typically six months, with a fixed interest rate.

Pros:

  • They can be switched to a long-term mortgage if you prefer.

Cons:

  • They usually have a higher interest rate than adjustable-rate loans.

Cross Collateralization

This is when the collateral of one loan, such as a car, is used to secure another loan you have with the same lender.

Pros:

  • Interest rates can be low.

Cons:

  • The lender may keep you from selling the asset used as collateral, even if you have paid it off.

CHIP Open

CHIP Open is a new, short-term financing product offered by HomeEquity Bank. It's a reverse mortgage which allows you to access up to 55% of the value of your home in tax-free cash. However, unlike a traditional reverse mortgage, there are no prepayment fees, meaning you can pay off the total amount whenever you like.

Pros:

  • Easier to qualify for than other short-term products since it's not based on income or credit rating.

  • No monthly repayments.

  • Interest rates and fees are highly competitive in the short-term lending space.

  • If you need a longer-term solution, you can switch to the CHIP Reverse Mortgage at a lower interest rate.

Cons:

  • Only available for Canadians 55+.

  • You must own your home.

  • Interest rates are higher than the regular CHIP Reverse Mortgage, allowing us to waive any prepayment penalties altogether.


At Front Door Mortgage, we can help you choose the best short-term financing option that fits your needs! Contact us today for our expert advice.


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