If you are looking for a large amount of financing you might be the right candidate for a home equity loan. A home equity loan is pretty much exactly what it sounds like – a loan approved based on the value of your home’s equity. The equity acts as collateral for the secured loan.
Since the terms of the loan are based on the equity in the property, the amount that you can borrow is flexible and comes with very low-interest rates. This means applying for a home equity loan in Canada can be an attractive option if your self-employed, have a lower-income, or have bad credit.
A home equity loan can be used for pretty much anything you desire. You might need to pay off some revolving credit. You might want to finance some home improvements or inject some cash flow into your business.
A full 3 million Canadians currently have a home equity loan or a home equity line of credit, with more people applying every single day. Read on to find out why a home equity loan may be suitable for you.
1. Home Equity Loan Explained
It is important to understand just what a home equity loan is. A loan against your home means you are borrowing money using the value of the property alone. Your equity is the portion of your home’s value that does not have any mortgage balance. For example, if you have bought a $500,000 home and have made a $100,000 down payment, then your home’s equity will stand at $100,000.
Using the current appraised value of your home to secure a loan is instead of your income or credit score. In Canada, you can typically apply for a home equity loan that is worth up to 80% of the value of your home. Simply using your home as collateral. Here are the main types of home equity loans available.
Standard Home Equity Loan
This is the most common form of home equity financing that is sought by Canadian homeowners. To qualify for this, you will typically need to have at least 20% equity in your home and have a debt-to-income ratio of less than 43%. You can receive the home equity loan either as a fixed lump sum or as multiple payments. You then pay off the value of the loan over an agreed period of time via monthly payments.
Home Equity Line of Credit (HELOC)
A HELOC is very similar to a home equity loan, with a few interest caveats. As you might have guessed, a HELOC is a line of credit that is secured against the value of your home’s equity. You can typically set a credit limit equal to 65% of the value of your home’s equity for a Canadian HELOC. You can borrow all or just some of the credit limit and when you have paid it off, you can choose to borrow again as needed.
A reverse mortgage is a type of loan that is very similar to a standard home equity loan. However, you do not have to pay back the debt until you sell your home. Typically, a reverse mortgage is only available to those over the age of 55, allowing them to plan and finance their retirement. The most you can borrow via a reverse mortgage is up to 55% of your home’s equity minus the outstanding mortgage balance.
2. Benefits of a Home Equity Loan
A home equity loan in Canada has many advantages compared to your bank or credit union. These benefits include:
- Easy access to credit and quick approvals.
- Avoid the high-interest rates of other types of loans.
- Home equity loans are easier to get if you have bad credit.
- The interest on a home equity loan might be tax-deductible.
- Interest is only charged on the amount you borrow.
- You can usually pay back the debt early without smaller prepayment penalties.
- You can use your equity to renovate your home and therefore boost your home’s value.
These are just a few of the main advantages of a home equity loan. You can browse our home equity loan guides to find out exactly how they can benefit you.
3. How to Apply for a Home Equity Loan
Fortunately, applying for a home equity loan in Canada is considerably easier than applying for a bank loan. On our website, you can apply in just a few clicks and receive an approval decision in hours. Of course, you will need to meet some minimum approval requirements.
You will also need to have some documentary evidence to prove that you are actually eligible to take out a home equity loan or HELOC. Here is what you will need to apply for a home equity loan in Canada:
- At least 20% equity in your home (this figure includes the down payment).
- A sufficient credit score (although home equity financing is available to those with bad credit).
- Proof of a stable and sufficient income.
- Proof that you actually own your home (a PDF of the deed may be sufficient).
- Current mortgage information statements.
Once you have received pre-approval, you may also need to allow the lender to assess your home’s value before they grant the loan.
4. How to Find the Right Home Equity Loan
When seeking a home equity loan, there are a few important things to keep in mind if you want to find financing that is right for you and on the best possible terms. Here are some key things to look out for when choosing a home equity loan provider:
- Do they offer a flexible repayment structure?
- Does the lender have any hidden terms and conditions?
- Is the lender willing to negotiate on terms?
- How do you plan on using the funds you receive?
- Does this help improve your situation?
Once you have answered these questions, you will be ready to choose the right financing option for you.
Home Equity Financing Approval in 24 Hours or Less
If you are looking for a home equity loan our team has several years of experience. At Lend Today, we specialize in assisting homeowners to access their home’s equity. Apply for a home equity loan from a trusted and experienced Canadian mortgage brokerage or give us a call at 1-855-242-7732.