Are you looking to borrow money against the equity stake in your home? Are you interested in learning how to leverage your equity for financial benefit?
If that’s the case, this article is for you. Any type of borrowing action or loan that makes use of home equity as collateral is categorized under a home equity loan.
In this article, we will cover everything you need to know about these types of loans. As well as provide you with a useful home equity loan calculator, which will let you determine your home equity within several moments.
So whenever you’re ready to start your journey to home equity leveraging, keep reading.
In essence, home equity is the difference between how much you owe on a mortgage and the value of your home. For instance, if your house is worth $300,000 and you owe $200,000 on the mortgage, you will have $100,000 in total home equity.
Home equity is not defined permanently, and it can go up in several ways. For your home equity to go up, you either have to pay down your mortgage or increase the value of your home (which can happen automatically).
In Canada, this term is referencing all of the different loan types, which make use of a home as collateral for the loan. These are all home equity loans:
Second mortgages are taken out on the equity of the home, which stays on top of the already active mortgage. This type of loan allows a homeowner to borrow money without refinancing their mortgage. By using the house as collateral, you can acquire financiers to consolidate debts, make purchases, or finance projects.
Reverse mortgages are only available to senior citizens. This type of loan allows them to convert 55% of their equity into tax-free cash. These finances can be used for anything, including debt, renovations, and expenses.
A home equity line of credit or HELOC line uses your home to guarantee repayment on a loan. This type of loan can be issued for 65% of the market value of the home. The main advantage of this loan is that it allows you to borrow to your credit limit and pay off the loan on your own terms and conditions.
Refinancing your mortgage allows you to take a loan out to cover your current mortgage payments. This is usually done to reduce the higher interest rates. In general, a refinancing loan has its own terms, which can be separate from the lender or unique to the current mortgage.
Qualifying for a home equity loan is quite variable, but it’s mostly based on your available equity.
If you have good credit and a substantial income to qualify for access to equity, we can help you get better interest rates from the big 5. But if your credit is not that great and doesn’t have a verifiable substantial income, the equity can still be accessed based on the appraised value of the home.
Based on these factors, you will be able to acquire financing from a variety of lenders. Starting with the big 5 banks, and ending with private mortgage financing.
Knowing your credit score can help you determine which institutions or lending entities you can get your loan from. If your credit score ranges from 600-900, you will most likely be able to work with the major Canadian banks.
If you don’t fancy the big banks, you can work with smaller institutions that have less stringent qualification standards. These entities usually service individuals with scores between 550 and 700.
The most lenient qualification criteria are apparent with private individuals and corporations. If your credit is below 600, a private loan might be your best bet.
In many ways, the home equity loan borrowing capacity is dependent on the amount of equity you have and the true value of the home. In Canada, primary lenders will provide up to 80% of your home value in true loans.
Borrowers who want to make use of a greater loan-to-value percentage will need to search for private lenders who provide financing up to 90%. The loan to value ratio can be determined by dividing the quantity need for the loan by the appraised property value.
Also, any existing mortgages and loans on a property will help to determine your equity. Existing mortgages will reduce your equity, as well as your borrowing capacity. If a property is clear, you can optimize your borrowing eligibility to the limits.
You are very likely to be able to borrow finances secured against your equity stake. Interest rates on loans against home equity are often much lower than other loan types. Not all institutions offer home equity loans though.
Before you can borrow against your home equity, you need to get approved. Your lender might choose to deposit the full borrowed amount in your bank account all at once.
All of the information above is relevant to your approval process, so you should prepare a document that outlines all of your best financial qualities.
It’s pretty useful to mention home refinancing and mortgage coverage one more time. In general, you can borrow up to 90% of your home appraised value. From this amount, you have to make some deductions.
And they are:
On the refinanced part of your mortgage, the interest rate will be different from that which applies to your current mortgage. You can expect to have the terms on your contract changed, so be very careful when assessing your new terms.
In essence, you would be refinancing your home to pay off your existing mortgage, and then take out additional equity. This is useful for investors, but also a great way to reduce your costs in times of financial turmoil.
Our home equity loan calculator is a great tool that allows you easily calculate all of your available home equity, making it easier for you to apply for a second mortgage or home equity loan.
With our home equity calculator, you can also determine your potential home equity loan rates, and consequently, the loan and the pay interest. This calculator is the first step that most lenders also make use of to determine if you qualify for the loan in the first place.
The home equity mortgage calculator will determine equity, in the form of available funds in your property. Most lenders will offer a home equity loan up to 90% of your home value.
To determine your home equity, you have to multiply the property appraised value by 0.90 (the maximum LTV percentage), and then subtract the entire mortgage balances that you have (include your first, second mortgage, and any lines of credit open for the property).
To better illustrate the calculations, let’s take a look at this example. For a property with a value of $600000 with a mortgage of $300,000, you need to multiply $500,000 by 0.90%, and you will get a result of $540,000.
After this, you need to calculate the difference between the result and the mortgage. You will get an available home equity amount of $240,000.
Let’s add a HELOC for the next example. For an appraised value of $600,000 with a $300,000 mortgage with a $60,000 HELOC, you need to do the same first calculations. You will get $540,000 again.
After this, you add to calculate the difference between the result and $360000 (mortgage + HELOC). The outcome is equal to $180,000. These numbers are provided for approximation purposes only, they are not indicative of what your numbers will be.
To use our home equity loan calculator Canada, you will need three key pieces of information:
If you don’t have any idea how much your home might be worth, contact us to request a market analysis. You can also make use of our home value estimator.
To find out how much you owe on your mortgage, take a look at your most recent statement. If you don’t know your credit score, you can always get yours online for free.
Once you have the information, input it into our home equity calculator and it will provide you with an estimated maximum loan amount that you can qualify for. With this number record, reach out to equity lenders and gather quotes.
When you find the best deal, don’t settle for it. Use it as leverage and try to get an even better rate.
Use home equity loan calculator and find out your interest rate for a home equity loan, along with monthly payments.
Our home equity calculator can tell you how much can borrow, how much your monthly payments on the loan will be, as well as your approximate interest rate. In almost all cases, a home equity loan has monthly payments of equal size with a fixed rate.
These payments will be determined after these parameters are defined:
If you’re looking to lower your interest rate on a home equity loan, you can try several things. First, you should attempt to improve your credit score. This is best done prior to getting the loan, as this will ensure you get the most favorable rates.
To quickly improve your score, make payments on all of your past-due collections, such as judgments, tax liens, collection accounts. You should also pay off all your credit cards to a level of at least less than 30% for your total credit limit (for each account).
If you want to get a lower rate on an already existing loan, try to refinance your loan with the lender. You can save on closing costs if you refinance with the same lender who provides the loan. Inform them of your interest in a lesser rate on the loan.
The loan officer will ask to pull your credit report, so once again, an acceptable credit score will help you qualify for better rates.
Another thing you can do is look for other home equity lenders. You should assess offers from other lenders that are willing to compete for your loan. Begin by asking for a Truth In Lending form and a good faith estimate.
After this, compare the annual interest rate from each to determine which is most beneficial to you.
And finally, you should submit an application to the lender that simply proposes a lower interest rate on your existing loan. Refinancing your loan can help, but sometimes asking is more than enough.
Now that you know what home equity is, and how it can be leveraged, you can finally make use of our home equity loan calculator. If you haven’t already, scroll back up and input your estimated information for an accurate representation of what to expect.
In any case, it’s your home and your equity, so it’s up to you to decide what to do with it. If you need money, you now know how you can quickly get it.
If you’re interested in learning mortgage about home equity loans and how to use the home equity mortgage calculator, get a free quote or contact us to speak to a licenced mortgage broker.
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