When it comes to finding the best home equity loans in Canada, it can sometimes be difficult to determine where you should look for help.
After all, there are many lenders to choose from, both large and small, and all of them offer different promises as they compete for your business. As it is with most things, to make an informed decision requires the best information.
Read on to learn more about how elements like your credit score, payment history and existing mortgage balance will all play a role in determining the loan amount you can receive, and the interest rate you’ll pay.
Home Equity Loans Explained
A home equity loan (often referred to as a second mortgage) allows homeowners to borrow money by using the value of the home as collateral, and is a very common way for homeowners to access affordable financing that might not otherwise be available.
Home equity loans are a fantastic way to get your hands on the cash you need to accomplish your goals, whether you plan to use the equity in your home to:
- Consolidate debt by paying off credit card balances or other high-interest loans
- Pay for unexpected medical
- Buy school supplies or pay tuition
- Solve temporary cash flow problems for your business
- Perform renovations or repairs on your home or property.
Depending on the type of home equity loan you choose, you can even use the money you receive to go on a much-needed mini-vacation!
The fact is, a home equity loan can be an extremely useful financial tool, and it can enable you to tap the unused potential of your current home’s mortgage without having to sell your house.
The only question now is, why not leverage your most valuable asset and turn an obstacle into a solution?
How Do You Calculate Home Equity?
Home equity loans are calculated based on the difference between the current market value of your home and the amount left on your mortgage.
Using a hypothetical example, if your home had a current estimated market value of $850,000 and you had already paid off $500,000 from the time that you bought it, the home equity you had built in this case would be $500,000.
However, just because your home has an equity value doesn’t mean you get to borrow 100% of that value. Traditional lenders like banks limit the amount they will lend to somewhere between 80% and 90% of your house’s total accumulated equity.
However, not every financial company has the home equity loan policies, and the loan amount will vary depending on the lender and your own financial background.
Your monthly payment and interest rate will also vary depending on your specific situation, and factors such as your credit score and your financial history will have an impact.
What Types of Home Equity Loans Are There?
Generally speaking, there are two major types of home equity loans.
One is a fixed rate loan, and the other is called a home equity line of credit, often referred to as a HELOC.
Fixed Rate Loans
When you have a fixed rate loan, you are usually provided with all the money in one lump sum. These loans are usually used for larger purchases, or in cases when you would otherwise need a large amount of cash upfront.
Lenders usually require repayment on a regular schedule over a period of between 5 and 15 years. The interest rate will be “fixed,” in that it will not change. Sometimes banks and other major financial institutions need to approve the specific project you’re using the money for, which are stricter than the alternative, described below.
Home Equity Line of Credit (HELOC)
A HELOC is a slightly different type of home equity loan. It is essentially a line of credit, one from which you dip into periodically.
Go ahead! Borrow a small amount, pay it back, and then borrow again! With this type of line of credit, home equity is the friend that keeps on giving. Another benefit is that you never need to ask permission from the bank. You can use the money for whatever you want.
HELOCs allow you to withdraw money for a set period of time, usually between 5 and 10 years, which is followed by a “repayment period,” one where you’re not allowed to take out any more, and must only repay the amount owing.
Many HELOCs work using a variable interest rate, which means that the interest rate changes over time based on market conditions.
How Much Can I Borrow?
The amount of money you can access will always depend on a number of factors, some of which are described above. But when it comes down to it, the final amount of financing is secondary to the most important elements, which are the interest rate, and the specifics of the repayment plan.
If you want to find out exactly how much you can borrow, the best way is to shop and compare by speaking to as many lenders as possible. If time is not an issue, do your research on your own.
However, if you need money relatively quickly, it helps to have a partner that is able to shop and compare for you. Credit Arch is one of those companies.
By entering just a few pieces of information into their form, you’ll be on your way in a matter of minutes. Credit Arch takes all the relevant factors into consideration for you, and their powerful algorithm – combined with their deep network of lenders – helps connect you to an ideal lender, one with lower rates than the competition.
By simply filling out the form, you could find yourself with a pre-approved loan in minutes, and the money in your account in just a couple of days!
Let Credit Arch Help You Today
At Credit Arch, we do the legwork for you.
Just fill out one form, and we’ll get you the best possible offer in minutes! Have questions about your home equity loan? Contact us today, and we’ll be happy to walk you through it.
Financial freedom is only a few clicks away with Credit Arch!