16 Sep 2020 Home Equity Loans
In Canada, home equity loans use the equity in your home as collateral to secure financing. Because of this, home equity loans offer considerable flexibility in how much you can borrow and what you can use the funds for. This article will help answer some of the common questions we receive from Canadian borrowers with regards to using their home equity.
Can I use a home equity loan to buy another house?
Yes! Buying a second home or an investment property through a home equity loan can be a low-rate, easy option for many homeowners. The use of your home as collateral helps maintain cost efficiency to finance a down payment in comparison to personal loans. Home equity loans are offered in lump sums which can be used for whatever you would like, including the purchase of a second home.
Can I get a home equity loan from a different bank than my mortgage?
Yes! There are various home equity loan providers who cater to homeowners differently based on the amount of equity they have built up, credit scores, and income factors. Shopping around to explore your options is always recommended when taking out equity from your home.
Ensure you familiarize yourself with not just the interest rate offered, but also any additional fees, including lawyers and appraisal costs.
How much can I borrow with a home equity loan?
Your borrowing capacity is dependant on how much equity you have built up. This can be calculated by determining the difference between the market value of your home and the amount of your remaining mortgage. Lenders are then generally willing to lend up to 90% of your equity. Example below:
Home value: $800,000
Remaining mortgage balance: $300,000
Equity = $500,000
If you were to borrow 90% of your equity you could then take out a home equity loan of $450,000
Can I get a home equity loan with bad credit?
Yes! There are many home equity lenders outside of Canada’s major banks who are willing to provide home equity loans regardless of your credit score. ‘B’ lenders and private lenders are smaller lending institutions offering higher interest rates but more tolerant qualification standards.
Can I get a home equity loan if I am self-employed?
Yes! Many self-employed borrowers find it difficult to qualify for home equity loans through Canada’s major banks due to their income and tax statement requirements. Private lenders offer an alternative route with greater leniency for self-employed Canadians seeking a home equity loan. Rather than requiring full financial documentation private lenders only require the following:
Can I get a home equity loan if I just bought my house?
Yes! Home equity loan eligibility is not necessarily determined by how long you’ve owned your home, but rather how much equity you’ve built up within it. If you’ve just recently purchased but have in that time built up equity, then you’ll likely be able to take out a home equity loan. Generally, you can borrow up to 90% of your equity. This can be calculated by subtracting the amount remaining on your mortgage balance by the current market value of your home.