- Introduction
- Lending Choices for Ontario Homeowners
- The criteria that most lenders focus on can be boiled down to:
- The three broad categories of lenders include:
- What Is the Structure of Home Equity Loans in Ontario?
- What is a Home Equity Loan Used For?
- Mortgage Rates and Fees for Private Home Equity Loans
Owning a home in Ontario, you’re fortunate; the housing market strongly favours homeowners. In this seller’s market, consider leveraging acquired equity to achieve immediate financial goals effectively. Keep reading to learn more about home equity loans in Ontario.
There are several second mortgage options available for those homeowners with sufficient equity built into their properties. Ontario homeowners favour flexible home equity loans, a popular second mortgage choice for various financial needs.
Different established lending options offer the option of a home equity loan for interested Ontario homeowners, even if a homeowner has poor credit.
Ontario’s housing appreciation peaked over 18 months, from 2020 into the third quarter of 2021, reaching unprecedented levels. Impressive year-over-year numbers defy housing sector forecasts during the height of the Covid-19 pandemic.
According to the August Toronto Housing Report, the average house price has risen to $1,046,383. The cost of an average single-detached property increases significantly, with an average sale time of just 16 days. The housing market is currently experiencing a surge in demand, leading to a rapid sale of houses. The current situation demands multiple offers for a single property, leading to over-asking offers.
Lending Choices for Ontario Homeowners
Although many may believe that banks represent the only route to second mortgage financing, there are other well-established lending options for existing Ontario homeowners. In the mortgage industry, lenders are classified into three broad categories. The borrower’s ability to meet the qualification criteria solely determines the categories for mortgage financing.
The criteria that most lenders focus on can be boiled down to:
- Credit
- Income
- Debt ratio compared to income
- Other financial assets
- Current home value
- Existing home equity
The main criteria that most Ontario lenders are looking for when determining mortgage financing are based on the overall level of creditworthiness, degree of household income, and low household debt ratio requirements.
If these criteria are not sufficient, there are private lenders established in Ontario who will be able to offer second mortgage financing based on other criteria. Private lenders assess home equity, property value, and condition to provide short-term loans, despite poor credit and debt ratios.
The three broad categories of lenders include:
A Lenders- These lenders are the banks. Banks will put borrowers/homeowners through rigorous mortgage stress tests and require a credit score of at least 600. Lenders will also prefer traditional yearly, full-time income, which is easy to calculate when determining mortgage financing approval.
B Lenders- These lenders are credit unions and trust companies. B lenders require a minimum credit score of 550 and prefer traditional, easy-to-calculate household income.
C lenders- Private lenders are called C lenders in the mortgage industry. Private lenders lend on an individual basis, as part of a group of private lenders, and there are mortgage brokers who specialize in providing private second mortgage financing.
What Is the Structure of Home Equity Loans in Ontario?
What exactly is a home equity loan? A home equity loan lets you borrow against your home’s equity, receiving a lump sum with your home as collateral.
A home equity loan can be used for many purposes, including paying off liabilities and using the funds for immediate financial needs such as home fix-ups. A lender will approve a home equity loan by assessing the Loan-To-Value (LTV), degree of equity, and your home’s appraised value,
The banks will require exemplary credit and tend to calculate an LTV of typically 95% loan up to 95% of the appraised value of your property. To get approval for a home equity, it is imperative that you provide solid proof of substantial equity.
If poor credit has closed the door to securing a home equity loan through a bank, a private lender (C lender) can negotiate short-term home equity financing based on a current appraisal of your home.
A private lender determines loan-to-value (LTV) based on your home’s equity. Higher risk due to poor credit or debt limits LTV to 75%. He/she will be looking for:
- At least $70,000 in existing equity in your home
- Assessing the Current appraised value of your property
- Evaluate the current condition of your property
- Assessing any ongoing issues, such as mould or water damage on your property
- Any additional financial assets that may be applicable for additional leverage for the home equity loan
What is a Home Equity Loan Used For?
A home equity loan in Ontario is an effective and versatile option for fulfilling your short-term financing and financial objectives, just like any other type of second mortgage loan. Don’t take out an additional debt obligation like a personal loan when you have the option to tap into the equity in your home to meet your short-term financial needs. Uses can vary and could include:
- To pay down high-interest debt, such as credit debt with interest rates that can be as high as 29.99%
- Consolidate debt into one manageable monthly payment with an overall lower interest rate
- Home renovation projects that are pressing
- Pay of student debt
- Use money for business needs
- Help adult children with short-term financial needs
Mortgage Rates and Fees for Private Home Equity Loans
Private mortgage rates will be slightly higher than their bank counterparts. This relates directly to the deemed higher risk of the mortgage loan due to poor credit and potential higher debt levels of the borrower/homeowner.
Generally, a private lender charges a mortgage rate between 7% and 12%. The ultimate interest rate will depend on the homeowner’s unique financial picture. Any associated fees typically range from 3% to 6% of the total cost of the loan. Seeking to consolidate debt, renovate, or fund expenses? Our experienced mortgage brokers offer seamless navigation. Reach out for assistance. Take the first step towards your financial goals by contacting us today. Contact us at the bottom of the page to explore your options and confidently secure your future.
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