05 Dec 2019 Home Equity Loans
What is a HELOC?
A home equity line of credit, or HELOC, is a line of credit that uses your home as a guarantee the loan will be repaid. A HELOC in Canada can be issued for up to 65% of your home’s market value.
The main benefit of a HELOC, as opposed to a mortgage, is that HELOCs allow you to borrow up to your credit limit and pay off at your own pace with great flexibility. Early or accelerated payments are no problem and typically can be done without any penalty. In many ways, these products function more like a credit card than a mortgage.
How Much Can I borrow?
With a HELOC, the amount you’re able to borrow is dependent on how much equity you have in your home. Equity is determined by the value of your home, less any amounts owed on any mortgages against it. In Canada, HELOC lenders can only provide up to a maximum of 65% of your home’s value, so you should be able to calculate your borrowing capacity by taking the value of your home, subtracting any mortgages from this amount, and then multiplying that number by 65%.
What Can I Use a HELOC For?
One of the advantages of a home equity line of credit is its versatility – you can use your HELOC for virtually anything. Common uses for HELOC include:
When applying for your HELOC there are two general streams of lender options. ‘A’ lenders, including Canadian banks and credit unions, and ‘B’ lenders who cater to those who may not qualify with banks. While banks have rigorous application process and often require credit scores of approximately 650 or higher, ‘B’ lenders offer greater flexibility and can provide financing to those who don’t meet bank-level qualifications.
The following chart offers a deeper look at qualifications for a HELOC between ‘A’ and ‘B’ lenders:
‘A’ Lenders (Canadian Banks)
Credit score of over 620
Credit score of 620 or less
Debt to income ratio of 44%
Debt to income ratio of 60%
Strong history of on-time bill payments
Poor credit history not detrimental to gaining approval
Equity in your home of at least 20% of value
2-3 months of bank statements
Pass stress test
No stress test necessary
Why Should I Apply For a HELOC From Rateco?
One of the challenges with ‘B’ lenders is that there is no regulation of rates as there is with major Canadian banks. The private mortgage industry’s lack of regulation grants lenders the ability to create their own pricing, rates, and fee models. This creates difficulty for borrowers attempting to assess offers or ensure they’re being justly serviced.
That's where Rateco comes in.
Rateco’s live auction enables ‘B’ lenders to bid against one another for your business. Interest rates, fees, repayment schedules – our lenders compete, creating better, and more options for you to consider.
At Rateco, we're happy to build a strong, profitable business - and even happier that we can do it by helping people along the way.