How to Address Your Short-Term Financial Needs
What is a Short-Term Financial Need?
A short-term financial need is any instance where someone has an item or debt that requires funding for a short period of time to purchase or pay off, usually a year or less. Short-term financial needs can be anything from credit card bills and car payments to home repairs. Many homeowners during the COVID-19 pandemic had short-term financial needs due to labour stoppages and shutdowns. Many received short-term financing in the form of stimulus payments to help those most affected pay their mortgages and support their families.
Throughout the course of your life, you may have short-term financial needs that require financial assistance.
Short-term financial needs are not limited to individuals. Most businesses will go through periods where they have short-term financial needs, whether that be working capital financing or investment purposes. For both thriving and struggling businesses alike, there are many scenarios where they might require short-term financing.
Bank loans are the most common form of short-term financing in Ontario, but there is a wide variety of different lenders in the province who can provide short-term financing options for borrowers, from credit unions and trust companies to private mortgage lenders.
Short-Term Finance Examples
- Payday loans: These are the shortest-term loans available, offering cash up to $1,500 in Ontario for a period of up to two weeks long. While these loans are quite small and for less than a month, they come with very high-interest rates and are generally only used as a last resort for short-term financing.
- Credit cards: This form of unsecured debt can offer instant financial relief to borrowers, but it comes with some of the highest interest rates in the lending industry. The credit card will start accumulating interest as soon as it is withdrawn, with interest rates above 20%. Unlike other forms of financing, repayment does not need to be made in installments.
- Private Loans: While private lenders can and do offer long-term loans, they specialize in providing short-term financing. Most private loans are of term lengths between 1- 3 years and can provide a minimum loan of $25,000. They can offer first, second or even third mortgages, as well as home equity lines of credit, and cash-out mortgage refinancing.
- Bridge financing: Bridge loans are provided for a three to six-month period, after which they need to be repaid. They are often used when a homeowner buys a new property before they have sold their current one, as the bridge loan ensures that the homebuyer has a down payment available to ensure the sale goes through. If you require short-term financing for different reasons, a bank may not approve of the loan even if you have enough equity, but a private lender will. Similar to most private loans, a bridge loan from a private lender will be negotiated on a short-term basis, usually for a year or two.
- Reverse mortgage: Homeowners aged 65 and older can access up to 55% of their home equity for financing. Their lender can pay them in one lump sum, or periodic installments and they can get cash within a few days of signing the closing documents.
- Bank Loans: Bank loans are the most common form of short-term financing in Ontario.
How to Budget for Short-Term Financing
Regardless of whether you get a private second mortgage or bridge financing, you will need to budget accordingly to ensure you can make the most of your financing.
Most short-term financing options will come with high-interest rates compared to their long-term alternatives. You need to ensure that your income can more than cover the minimum required payments, a great way to do that is to use a mortgage calculator to find out what your regular financing expenses will be.
It is generally advised that you save money in an emergency fund, should you encounter any sudden expenses or changes in employment. The government of Canada recommends saving enough to support yourself for 3 to 6 months.
Short-Term Finance Options for Homeowners
If you are a homeowner in Ontario, you likely have home equity that you can use as leverage to secure short-term financing. Houses, condos and even cottages across Ontario have appreciated at a rapid pace throughout the decades, growing by an average of 13% from 2011 to 2021. With this rapid growth, many homeowners have enough home equity to access unique financing options that would otherwise not be available.
Here are some short-term financing options that are available to homeowners in Ontario:
Home equity loans: In Ontario, banks can provide home equity loans worth 95% of the market value of your home if you have enough home equity, however, they have very strict credit score and income requirements to approve loans, and most will not offer home equity loans on a short-term basis.
Private lenders don’t have any credit score or income requirements, and they often specialize in offering short-term loans and financing options. In Ontario, private lenders can offer home equity loans with terms as short as 1-3 years. Private home equity loans can be as low as $70,000, or as high a sum as 75% of the market value of an urban home or 65% for a rural dwelling, depending on how much home equity the homeowner has.
Home equity lines of credit (HELOC): During the draw period, homeowners can withdraw funds on an as-needed basis. Meaning that up to a predetermined credit limit, homeowners can withdraw as many funds as they need, as often as they need to. Their credit limit is based on their home equity, with most lenders willing to offer a credit limit worth 65% of the market value of the home. One unique advantage of using a HELOC for short-term financing needs is that you can pay off the line of credit without any penalties. With a private lender, you can secure a HELOC within one to two weeks instead of waiting a month or more for a major financial institution like a bank to approve your HELOC.
By using your home equity, you will be able to access a large sum of funds to address your financial needs, and you will save more money than if you used credit cards and other forms of unsecured debt.
Lending options that use home equity are referred to as secure loans. Generally, secured loans come with some of the lowest interest rates in the lending industry, compared to unsecured loans, which have the highest. (insert stats about the rate for each and maybe another form).
If you are a homeowner in Ontario who wants to use their home equity to access short-term financing, then our team at Mortgage Broker Store can help you. We can help you determine the market value of your home, your available home equity, and what financing options are available. As mortgage brokers who have been appraising homes in Ontario for over a decade, we can help homeowners evaluate their options and get the information they need to make an informed decision.
How to Find Lenders in Ontario Who Can Offer Short-Term Financing
Throughout our history in Ontario’s real estate industry, our team at Mortgage Broker Store has formed professional relationships with hundreds of lenders across the province who can provide short-term financing to homeowners. We can tap into this network to find lenders who can work with you, even if you own property that doesn’t have a home on it.
If you want to explore your short-term financing options and find lenders who can work with you, fill out a form on this website or call us at (416) 499-2122 to learn more. During your free consultation, we will understand your unique financial situation and needs, browse our network of lenders in Ontario, and once we find lenders you are eligible to work with, we can negotiate with them on your behalf to get the best deal possible. As a direct private lender, we can also provide you with the financing needed if a better option is available.