A Home Equity Loan is a general term that describes different types of loans in which the borrower uses the equity in their home as collateral.
Home equity is the difference between what you owe on your home and your home’s market value. Your home equity increases as you pay off your mortgage and as your home value goes up.
For Example: If your home is worth $250,000 and you owe $150,000 on your mortgage, you’d have $100,000 in home equity. Your home equity goes up in two ways:
- As you pay down your mortgage
- If the value of your home increases
There are three different types of Home Equity Loans in Canada.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving Line of Credit that is secured by your home. It allows you to pay it off in full and then re-access funds without having to apply for new credit from your lender. On a HELOC you can get a maximum of 65% of your home’s appraised value.
A home equity loan can be considered a second mortgage if the home equity loan is in second position. The amount you can borrow will depend on the amount of your home’s equity.
- A second mortgage option are typically for people with low/no/unprovable income and/or low credit scores
- It can help to reduce interest payments if you have a lot of credit card and other high interest debt
- It can be the only way to pay urgent, overdue bills such as property taxes etc.
If you are a homeowner in Canada and you are 55 years or older, you may qualify for a reverse mortgage. One of the most attractive benefits of a reverse mortgage, is that you don’t have to make regular payments. You don’t need to pay off the loan until you sell the property.
With a reverse mortgage, the bank makes monthly payments or a lump-sum payment to you. The amount you qualify for depends on the value and equity of your home, your age, amount of secured debt and property type/location.
Our mortgage brokers can produce and show you several different options so that you can select the optimal product for your specific needs. Working with a broker means you have someone on your side – always!