16 Jan 2020 Home Equity Loans
What is home equity?
In simplest terms, home equity is the proportion of your house which you’ve paid off and is actually owned. You can easily calculate your home equity by calculating the difference between what is currently owed on your home and the current market value of your home.
For example, if your home’s value is $1,000,000 and your remaining mortgage is $300,000 your equity would be $700,000.
Two factors will commonly affect your home equity. The market value of your home will fluctuate and influence your potential equity. A strong market can increase the home value, and therefore the possible equity. Secondly, the balance owing on your home. With each mortgage or loan payment your equity will increase.
What is a home equity loan?
In Canada, “home equity loan” is an all-encompassing term used to describe various loan types which use the borrower’s equity in their home as collateral.
Depending on your credit score, employment and income you can obtain a home equity loan from several different lender types.
Generally, ‘A’ lenders will provide financing up to 80% of the loan to the value of the home, or LTV. Private lenders are again more accommodating, with some providing financing of up to 90% LTV.
Loan-to-value (LTV) can be calculated by dividing the amount needed for your mortgage by the appraised value of your property.
LTV = Mortgage Amount / Appraised Property Value
Different formats of home equity loans include home equity lines of credit (HELOC), second mortgages, reverse mortgages, or refinancing a first mortgage with another lender, to name a few. Each of these loan types offer borrowers different means of financing by leveraging their home equity.
Why borrow against your home?
How to get a home equity loan?
1. Determine what type of lender you qualify with
Canadian lenders offer home equity loans each with varying qualification requirements and rates dependent on how you meet their qualifications. The first step in obtaining a home equity loan is understanding what type of lender you’ll qualify with.
2. Research your lender options
Make use of digital resources offered by lenders to understand rates, fees, and qualifications of each. Don’t hesitate to speak directly with lenders over the phone, webchat, or in person to ensure their service offering suits your needs.
3. Begin your application
Many lenders today offer online home equity loan applications. Once you’ve determined who your best lending partner is, go through their website application process where you’ll be asked to provide information such as loan amount, address, and contact information.
One of the challenges with ‘B’ and private 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 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.