Equity Offset Strategy

Could your home equity be working differently?

Many homeowners approaching renewal are facing a significant increase in their mortgage payment, even when their mortgage balance has gone down.

But the mortgage payment isn’t the only number worth considering.

For homeowners with substantial equity, there may be an opportunity to look at the mortgage, available home equity and investment strategy together — rather than treating each independently.

Here’s an illustrative example of what that can look like.

Example: Turning a $446 payment increase into a different financial picture

Want to see how this could work?

Take a look at a simple illustrative example of how available home equity and investment income could change the overall monthly picture.

Starting position

Five years ago, a homeowner had a $375,000 mortgage, amortized over 20 years, at a 1.69% five-year fixed rate.

Their mortgage payment was approximately:

$1,841/month

Five years later, approximately 15 years remain on the amortization.

At renewal, assume their mortgage balance is approximately $300,000 and they refinance into a new five-year term at 4.49%, while maintaining the remaining 15-year amortization.

New mortgage payment

~$2,287/month

That's approximately $446 more every month than the payment they've been accustomed to.

Now consider the available equity

Suppose the homeowner also accesses $100,000 of available home equity through a HELOC at 4.95% and invests those funds in an income-producing investment with an illustrative return of 8.5%.

Interest cost on $100,000 HELOC at 4.95%

($412.50)

Illustrative investment income at 8.5%

+$708.33

Illustrative monthly difference

+$295.83

That changes the overall monthly picture

New mortgage payment $2,287/month

Less illustrative investment spread − $295.83/month

Effective monthly cash-flow impact ~$1,991/month

Instead of experiencing the full $446/month increase in mortgage payments, the illustrative investment income reduces the net difference to approximately:

Net increase above the previous payment

~$150/month

$1,841/month → ~$1,991/month

The difference at a glance

Without the Strategy

$1,841 → $2,287

+$446/month

Full increase in monthly mortgage payment

Illustrative Equity Strategy

$1,841 → ~$1,991

+$150/month

Illustrative net monthly cash-flow impact

What's happening here?

The mortgage payment itself has not been reduced. Instead, the example illustrates how income generated from an investment funded with available home equity could help offset some of the increased carrying cost.

In this example, the investment produces approximately $708/month of gross income while the additional borrowing costs approximately $413/month in interest - an illustrative difference of approximately $296/month.

What could this look like with your numbers?

The example above uses hypothetical figures. Your mortgage balance, available equity, borrowing cost and potential investment return will be different.

Use the calculator below to explore an illustrative scenario based on your own numbers.

This example is for educational and illustrative purposes only. It does not account for taxes, fees, changes in borrowing rates, investment value fluctuations, changes in distributions or individual tax circumstances. Investment returns are not guaranteed. Borrowing to invest involves additional risk and is not appropriate for everyone.

See What Your Equity Could Do

Equity Strategy Calculator

Your Current Position

Estimated Home Value

Current Mortgage Balance

Explore an Equity Offset Scenario

Amount of Equity to Explore

Estimated Borrowing Rate (%)

Illustrative Investment Income Rate (%)

This is an illustrative assumption only and is not a guaranteed or expected return.

Time Horizon (Years)

Enter a few details above to explore an illustrative scenario.

Your Illustrative Results

Estimated Home Equity

Current Loan-to-Value

0.0%

Illustrative Borrowing Room to 80% LTV

Illustrative Maximum Mortgage at 80% LTV

The 80% loan-to-value figure is used only as a general illustration. Actual available financing depends on lender guidelines, qualification, property type, income, credit and other factors.

Illustrative Equity Offset Scenario

Estimated Annual Borrowing Cost

Illustrative Annual Investment Income

Illustrative Annual Difference Before Tax

Illustrative Monthly Difference Before Tax

Illustrative Investment Value After 10 Years

Future value assumes the entered investment rate compounds annually and does not account for taxes, fees, changes in distributions, investment losses, withdrawals or changes in borrowing costs.

Important: This calculator is provided for general educational and illustrative purposes only. It does not constitute mortgage, investment, tax, legal or financial advice and does not determine whether borrowing to invest is appropriate for you. Borrowing to invest increases financial risk. Investment returns, values and distributions are not guaranteed and may decline or cease. Borrowing rates and financing costs may change. Actual financing is subject to qualification and lender approval. Speak with the appropriate licensed mortgage, investment and tax professionals before making any decision.