A home equity loan is a kind of loan where a piece of real estate is used as security. Home equity loans are typically given as mortgages which are registered on a property. The main basis for being approved for a home equity loan is the equity in the property, or in other words, the value of the home minus the value of existing debts on the property. This is different from a bank mortgage since factors like credit score and job security are considered to be less important than the amount of home equity. Our team of professionals has years of experience with providing home equity loans in Ontario.
Terms and Payment Options for Home Equity Loans in Ontario
A standard home equity loan is a one-year open first or second mortgage with an interest rate of 7% to 15%. As an open mortgage, there is an option to end the mortgage early and only pay a three-month interest penalty fee. Home equity loans, unlike traditional bank mortgages, are flexible and can be customized to best meet the needs of your unique situation. One of our loan professionals can speak with you and decide what options would be best for you.
Popular Custom Options Include
- Interest Only Mortgage: Only the interest is paid and the principal is untouched.
- Blanket Mortgage: The mortgage is placed on several properties at once, which helps secure financing.
- Construction Draw Mortgages: We can pay the construction contractors as the work is completed.
In addition to these, other custom options can be written into the loan agreement. Our specialists are happy to discuss your unique situation and the kinds of options that are available to you.
How Much Can I Borrow with a Home Equity Loan
The amount a person can borrow is dependent on the value of the home, and the value of existing debts on the property. Lenders will calculate a metric called a Loan to Value (LTV) ratio. LTV is equal to the value of existing debts divided by the appraised value of the property. Our network of lenders will generally loan up to 85% LTV on properties in Ontario. While LTV is the key deciding metric, some lenders may also be sensitive to credit score and employment history.
Common Uses for Home Equity Loans
The money you borrow with a home equity loan can be used in any way you feel is best. Generally, the best uses of money our company sees are to pay off expensive debts or investing in a home renovation, higher education, or capital for a business. Some other people choose to use the money to purchase cars or vacation packages. The best use of the money depends on your individual needs and circumstances.
- Renovation: Money for renovations can be used to repair or make upgrades to your home.
- Debt Consolidation: You can use the money from this loan to pay off other high-interest debts.
- Education: You or your children can go to school and pay the tuition fees
- Business Investing: If you need capital to fund a business, a home equity loan can be a cash source.
Loans that we provide can also be used for other less common uses such as paying for emergency treatment, helping family members, or stopping a power of sale or foreclosure.
The Difference between a Home Equity Loan and Home Equity Line of Credit (HELOC)
A home equity loan and a home equity line of credit (known as HELOC) are two distinctly different types of loans. A home equity loan is an installment loan which means it has a fixed term and number of payments. A HELOC is a kind of revolving credit, similar to a credit card, which does not have a set number of payments. Typically a home equity loan has a fixed interest rate which is stated in the original loan agreement, in contrast, a HELOC will typically feature a variable interest rate. With a HELOC, a borrower may take out money at whatever time they need it as long as the credit limit is not exceeded. With a home equity loan, an initial lump sum is given, and a new loan contract must be drawn up in order to borrow additional money. With both types of financing, approval and interest rates are primarily based on a property’s loan to value ratio.