Is there an ideal % or ratio at which to refinance a property?

Question

I'll keep the numbers simple to better explain my question.

I own a 1m home with a mortgage of 400k in Toronto (60% equity). There's 600k I would like to get access to.

- Is there a general rule or ratio at which you should withdraw equity (Refi / HELOC)?

ex 1) 50% ratio (I get 100k from bank - Mortgage is now 500k)

ex 2) 60% ratio (I get 200k from bank - Mortgage is now 600k)

The reason I ask is as far as I understand the more equity you have stuck inside your home the less your money is working. Is there a ratio you follow to ensure optimal usage of home equity?

Hai Loc · Answer

Optimum usage is 80% LTV so $400k but you need to be qualified to carry a new $800k debt.. and that's if you use the $400k cash to buy something which is Toronto is like a bachelor or a 1 bedroom on the perimeters.

But if you want to take out say $200k and leverage that to another 80% LTV debt   you need to be qualified and show enough income to service both debts which in this case will be $600k and $800k respectively unless if you show that you are generating sufficient rental income to support the initial debt of $600k then you only need to be qualified for $800k debt

Hope this helps

Jacob Sampson · Answer

It depends what ROI you earn.  If you aren't smart and lose money then you should have left it as equity in the house.  If you figure out a way to make 100% ROI then you should pull out every dollar the bank will allow.  Its a tough question because it depends on your tolerance to debt and how good you are at investing.