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A Complete Guide To Home Equity Loans In Canada​

Even in times of economic uncertainty, people all over Canada enjoy the prospect of purchasing a home to call their own. Owning property can open you up to finance options you might not have heard of, based on the equity in the property alone.

Home equity loans let you borrow against your home to get a lump sum of cash. Getting this type of arrangement is a great idea for a lot of homeowners and expands your financial options.

Read on to learn all about how home equity loans work so you can get one when the time is right.


What Is A Home Equity Loan?

Money RecievedSo what makes a home equity loan different from a traditional loan and how does a home equity loan work?

With a traditional loan, you’re borrowing money from the bank, with principal and interest, over a particular period of time — usually about 5 years with a 25-year amortization.

With a home equity loan Canada, you’re placing the home value as collateral to secure your funding. This does away with a lot of the red tape that comes with the territory and de-emphasizes the importance of your credit score.

The equity that you already have in the home speaks for itself and lets you get quick and straightforward financing in most situations.

It’s crucial that you study the differences in these finance options and the benefits of a home equity loan so that you can figure out what’s best.

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What Are Some of the Benefits of Getting Home Equity Loans?​

There are a variety of benefits you will enjoy when you take out a home equity loan. By going point by point and factoring in how it applies to your finances, you are a few steps closer to getting the home you need.

Here are some of the advantages of a home equity loan you should get to know:

You Will Enjoy Lower Interest Rates

As with any form of financing, exploring the interest rates is one of the first and most important steps. You will appreciate the fact that home equity loans generally have lower interest rates than other forms of lending.

Because of these lower home equity loan rates, you’ll have an opportunity to get your finances in order for whatever goals you have in your life.

Even getting interest rates 2% lower than the average will keep more money in your pocket over time.

They Provide Excellent Investment Potential

Home Equity Loan AvailableGetting a home equity loan is an option tailor-made for the investment-minded individual.

Since you’re borrowing against the equity you already have in your house, you can use this cash advance to fund business and investment ventures. One of the worst circumstances you’ll come across is having a surefire business opportunity that you can’t take advantage of because you’re cash poor.

When you leverage this equity loan, you may even be able to pay off another loan, such as another car note or mortgage, early, barring any early prepayment clauses. This can come in handy when you’re trying to acquire an investment property to flip or rent out.

Whether you’re interested in more real estate assets or going the entrepreneur route and opening up businesses to grow your income streams, a home equity loan can provide an excellent and dependable source of capital.

You Can Use it to Build Your Emergency Fund

Home Equity Loan OntarioMost people are living check to check and don’t have enough money to cover them for any financial emergencies that come about.

A car repair expense or hospital can easily throw many people into a state of financial peril. When you have access to a home equity loan, you won’t have to worry about where your emergency cash will come from.

This influx of liquidity can be used however you need it.

Having access to this level of protection lets you breathe a sigh of relief in your everyday life and empowers you with the confidence you need to live freely. Knowing that you can take care of your needs in a state of financial crisis also frees you up to chase dreams and do whatever you really want to do with your life.

Home Equity Loans are Great For Home Renovations & Emergency Repairs

Plenty of people making home renovations plan on tapping out their savings to get it done. Making repairs and renovations to your home isn’t just a nice way to improve your property — it’s your responsibility as a property owner.

Keeping your house modern and convenient lets you have more equity and improves the sales price that you’ll receive if you decide to list it. 

Having access to an equity loan makes it more possible to make these repairs without having to hurt your finances.

One of the biggest perks of a home equity loan is the fact that approval is quick and straightforward.

You Can Get A Quick and Easy Home Equity Loan Approval

Applicants can get upward of 90% loan to value with decisions rendered within a day or so. Even getting an equity loan for 80% of your home is still an amazing deal. This makes it a worthy option for people dealing with a financial emergency.

How Much Equity Can I Borrow?

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How To Get a Home Equity Loan

Since you can now understand the perks of having a home equity loan, you should put your finances in order and explore your options. Here are a few steps that you should take:


1. Find Out How Much Equity You Have In The Home

How To Get A Home Equity LoanOne of the first and best steps you will need to take is verifying how much the home is worth.

To do this, get the most recent copies of your home loan statement, and also hire a professional for an appraisal. Your loan balance will show the amount of equity you hold based on how much you have paid off.

For instance, if your home loan is worth $350,000 and you have $100,000 left in mortgage payments, then you have $250,000 worth of equity in the house.

Keep in mind that this could be more or less depending on the home’s current value. That’s where getting a recent appraisal comes in. Your home could have very well increased in property value due to improvements you have made or changes in the market.

This equity is the main source of collateral, so getting a credit report and a copy of your score isn’t as important as it would be for other forms of lending. The main reason that credit history would become a factor is if you opt for a home equity line of credit (HELOC), which is a type of home equity loan that gives you revolving credit.

Always research HELOC vs home equity loan terms so that you can decide whether you want a loan or line. This means getting to know the difference between a home equity loan and a second mortgage.

Though home equity loans are often referred to as second mortgages, the original mortgage takes priority. As such, the home equity loan lender is taking on a bigger risk.

2. Make Sure You Have The Right Prequalifications

After checking into your home equity, make sure you also look into other pre-qualifications for applying.

You’ll need to show that property ownership is in your name and will have to provide some documents when going through the application process to use the home as collateral. Bad credit applicants are OK — in fact, bad credit home equity loans are quite common.

Taking out this type of loan can even help you improve your credit by consolidating your biggest debts.

3. Use A Lender That Is Trustworthy & Lincesed

Remember that applying for a home equity loan is a two-way street. While the bank is approving or denying your application, be sure that you also do your due diligence when researching the financial institution.

Look into the credit rating of your bank and whether or not they’ve had any class action lawsuits or other issues. Check with your chamber of commerce, the Better Business Bureau (BBB), and your province to make sure that you get an equity loan from a quality institution.

Look into finding a bank that also gives you fixed rates that are fair, and that makes it easy to do business in terms of technology and convenience.

4. Read Through The Terms and Apply For The Home Equity Loan

Always know what you’re signing up for when applying for personal loans. When you fully understand the terms of your home equity loan, you’ll feel far more confident signing an agreement.

This means understanding the repayment period, how much collateral you hold, understanding the premium rate and schedule, and understanding whether your interest rates are fixed or variable. Have your real estate agent look through the terms of the loan so that you are completely aware of what to expect.

Above all, make certain that you choose a loan that you know you’ll be able to repay in a timely manner.

Use Your Home Equity Loan Wiseley

Once you get your equity loan, it’s important that you put it to good use. You need to understand the terms and proper application of a home equity loan to make sure you’re getting the most from it and so that you don’t lose your home.

Here are a few points you should begin immediately considering once the loan is approved.

Plan Out Some Home Renovation Projects

Making home improvements is one of the ideal steps you can take and among the best uses of your loan. It lets you use the lump sum of cash to build even more equity in the property, making it a more valuable asset and giving you more leverage for refinancing.

Things like building a deck and replacing your windows can give you an incredible return on investment (ROI). You may also use this loan to fix a foundation, finish a basement, replace a roof, or repave a driveway.

Manage and Consolidate Your Debt

If you’re going to have an outstanding balance on a home, the very least you can do is borrow against the home to consolidate your debt.

If you have all sorts of credit card debt, a car note, student loan debt, and other forms of consumer debt, it may be best to pay them off and only owe one lender. Making monthly payments to one source makes your financial life more organized and easier to settle your debts.

Owning a home comes with its set of financial responsibilities, but it also opens the door to unique financial opportunities, such as leveraging your home’s equity for debt consolidation. If you find yourself struggling with a plethora of debts, a home equity loan can act as a financial lever, streamlining your debts into a single, manageable payment, potentially with more favorable terms.

Combining Various Debts

If your financial landscape is cluttered with diverse debts including credit card balances, car loans, student loans, and other consumer debts, consolidating them through a home equity loan can be a strategic move. These diverse debts often come with varying interest rates, payment due dates, and terms, making them challenging to manage effectively and increasing the risk of missed payments.

Advantages of Consolidating Debts with Home Equity Loans

  1. Simplified Payments:

    • By consolidating your debts, you condense multiple payments to different lenders into one monthly payment to a single lender, simplifying budgeting and financial management.
  2. Lower Interest Rates:

    • Home equity loans typically offer lower interest rates compared to high-interest debts like credit cards, potentially saving you a substantial amount in interest payments over the loan term.
  3. Improved Credit Score:

    • Managing and making timely payments is easier with one consolidated loan, which can have a positive impact on your credit score over time.
  4. Tax Benefits:

    • Interest paid on home equity loans is often tax-deductible, unlike interest on credit card debt, providing potential tax benefits (consult a tax advisor for your specific situation).
  5. Fixed Repayment Schedule:

    • With a home equity loan, you usually have a fixed interest rate and a set repayment schedule, providing certainty and predictability to your financial planning.

Strategic Considerations

While using a home equity loan for debt consolidation can simplify your financial life and potentially offer cost savings, it’s crucial to approach it with prudence and consideration. Since a home equity loan is secured by your home, failure to repay the loan could risk foreclosure. It’s essential to assess your repayment capability realistically and consider the long-term implications of leveraging your home’s equity.

If a swath of outstanding debts overshadows your financial landscape, borrowing against your home’s equity to consolidate these debts can be a wise strategy, bringing organization, lower interest rates, and potential tax benefits to your financial life. However, this strategy necessitates responsible financial behavior and thoughtful consideration of the associated risks and benefits, ensuring that the consolidation serves as a step towards financial stability and not a precursor to further financial strain.

Optimize the Home Equity Loan

Always remain open to refinancing opportunities for your equity loan. This can help you get better terms and more reasonable interest rates down the road.

When refinancing opportunities come about, be sure you have copies of your T4’s and other proof of income. Keep records of any property tax payments, in addition to an official appraisal of the property to know how much potential collateral you hold.

You should also be open to the opportunity of taking out a HELOC if it suits you. This way, you’re still using your home equity for collateral, but having a line of credit to go with it creates more leverage. HELOCs and home equity go hand in hand, so do your research.

Think About Your Life Improvement and Your Children’s Education

Getting access to a home equity loan also offers more options to pay for education. Whether you have a dream you’ve always wanted to achieve, or you want to open your children up to more educational opportunities, home equity loans can accomplish that.

Annual college tuition and room and board for a public school cost about $6,000 right now. You can expect these expenses to go up over the years, and this can really add up if you have more than one college-bound child.


Get The Home Equity Loan That is Best For You

Now that you know more about home equity loans, it’s time to reach out to professionals that can help you. We’ve been in business for years helping people make their homeownership dreams become a reality.

Be sure to contact us if you’re looking for the best home lending options available. 

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