Home Equity Lending
A Home Equity Loan in Canada 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.
There are three different types of home equity loans in Canada that are available:
- Home Equity Line of Credit
- A second mortgage
- A reverse mortgage
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 home equity line of credit, you can get a maximum of 65% of your home’s appraised value. The more equity you have in your home, the more money you can borrow.
Costs that are associated to applying for a HELOC are: appraisals, title searches, title insurance and legal fees.
Things to remember with regards to the payments on a HELOC.
- It’s a revolving credit facility, you therefore only pay interest on what you borrow.
- The payments are interest-only. You’re still responsible for making principal payments, but you decide when and how frequently you do so.
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 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.
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.
Reverse mortgages are designed to increase your income so that you can have a much more comfortable retirement.
- The reverse mortgage is the best of the three options for cash-strapped retirees looking to boost their retirement income
- Easy to qualify for if you are aged 55+ because income and credit scores are not considered
- Offers the most unique of home equity loan benefits: No need to make scheduled repayments, so this provides a cash injection with no negative impact on cash flow
- A good option for retirees looking to use some of their equity to financially help out family, leave an early inheritance, pay for a family wedding or their grandkids’ education
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 your side – always.