The home is an asset, securing the mortgage loan. These loans are based on loan-to-value, the current mortgage balance over the home's value.
For example, if we have a mortgage balance of $100,000 and the home's value is $250,000, then we have a loan-to-value of 40% or 40%LTV.
In a typical mortgage, over time, the mortgage balance decreases and the equity increases. Tapping into this equity is the smartest way to borrow, meaning it has the lowest cost or less interest paid.
To access this equity, the home needs a certain amount of equity in the first place. The policies require that 20% of the home's equity stay in place to secure the mortgage. With 20% securing the mortgage, this allows access up to 80% of the home's value.
The process of refinancing a mortgage is to negotiate a new mortgage that replaces your existing mortgage with the additional funds coming from the home's equity.