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Home Equity Loans

Home Equity Loans in Canada

Home equity loans are a great way to access extra cash when you need it. You can use the money to consolidate debts or pay for home improvements, emergency expenses or make a purchase you’ve been planning for. A home equity loan means you are using the equity in your home to take out a loan from a lending institution. That means you have to own a home to take out a home equity loan in Canada.

In Canada there are many reputable companies that offer home quity loans. Their approval process is usually pretty simple, and you can apply for a home equity loan from the comfort of your home. It’s easy to get approved as long as you meet the qualification requirements. Here at Smarter Loans you’ll find a list of companies in Canada that can provide you with a home equity loan. Simple take a look at the table below to explore your options. Once you find a lender you like, click “Apply Now” next to their listing to go directly to their application on their website. Alternatively you can pre-apply right here on Smarter Loans, and we will connect you with a suitable lender for your situation. One of our partners will reach out to you shortly to process your home equity loan request.

We can help connect you with the home equity loan providers in Canada.

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Top Home Equity Loans Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$500 - $30,000
19.99% - 39.99%
6 - 120 Months
Apply Now
Up to $35,000
Starting at 5.15%
Varies
$350 - $25,000
Varies
12 - 60 months
Apply Now

What is a Home Equity Loan and How Does it Work?

 

A home equity loan is a revolving line of credit secured by the equity in your home. Home equity loans can be a convenient and flexible way to borrow money from your home on the cheap when done right. (It’s a lot less costly than carrying a balance on your credit card.)

In order to get the most out of your home equity loan, you want to use the borrowed funds on something that’s likely to help improve your financial wellbeing in the future. You’ll also want a plan in place to pay it back in a reasonable period of time. (It can be easy to fall into the trap of only paying the interest, but you’ll literally find yourself in the same place several months or years later.)

Just how much equity can you borrow from the equity in your home using a home equity loan? Currently, you’re able to borrow up to 65% of the appraised value of your home. But keep in mind that your mortgage and home equity loan together can’t exceed over 80% of the value of your home.

Main Benefits and Uses of Home Equity Loans

Consolidate Debt

Are you carrying a lot of high interest debt? With credit card interest rates typically at 19% or higher, it can cost you a lot in interest, not to mention take you a long time to pay off. By taking advantage of a home equity loan, you can save substantially on interest (if you have good credit, most lenders offer home equity loans at prime + 0.5% or 1%). This will help you pay off your debts sooner.

Home Renovations

Are you thinking about renovating your home? Instead of putting it on your credit card, why not use a home equity loan? If you’re borrowing a lot of money and you won’t be able to pay it off anytime soon, a home equity loan is ideal. Not only is it at a lower interest rate than a credit card, you can pay back what you owe on a schedule that works for you.

Flexible Repayment Terms

If cash flow is your main concern, a home equity loan may be a good product for you. With home equity loans, the payments are a lot less onerous. Unlike most mortgages where you’re required to make payments comprising of principal and interest, with a home equity loan you make interest only payments if you so choose. This is less of a strain on your cash flow, especially during tough financial times, such as job loss.

A Few Things to Consider

Interest Only Payments

Although flexible repayment terms can be an advantage, they can also be a disadvantage. The ability to make interest only payments means that if you lack financial discipline and you don’t put your own personal repayment plan in replace, you could find yourself with a larger home equity loan balance than when you started. This can make it tough to switch lenders upon your mortgage renewal and get the best interest rates (since you might not be able to pass the stress test).

Tougher to Qualify for

Home equity loans are tougher to qualify for today than they used to be. Not only are you required to pass the mortgage stress test (2% + your HELOC rate), some lenders are choosing to be more conservative and qualify you based on the limit of your home equity loan instead of your current outstanding balance. If you already have a lot of debt at the moment, you may have a tough time qualifying.

Higher Interest Rates than a Mortgage

Although the interest rates on home equity loans are almost always cheaper relative to other forms of unsecured debt, it’s important not to lose sight that home equity rates are typically higher than mortgage rates. As such, if you borrow a substantial amount of money and you don’t plan to borrow anymore, you might be better of converting your home equity loan to a mortgage and paying a lower interest rate.

Likewise, the interest rates charged on home equity loans are typically tied to your lender’s prime rate. (Prime rate is the interest rate offered to a lender’s most creditworthy and trusted customers.) As such, you’re leaving yourself exposed if interest rates go up a lot over a short period of time.

Canada.ca Video: Is a Home Equity Line of Credit right for you?

By the Numbers

About 2.15 million Canadians had a home equity loan in 2014 with an average outstanding balance of $57K. (source: www.cbc.ca)

What to Look Out For

Interest rate
Find out the best interest rate a lender will offer you. The interest rate lenders offer is based on several factors, including your credit score and the home equity loan credit limit. The better your credit score, the better the interest rate you should be able to qualify for. Likewise, the higher your home equity loan credit limit, the better your interest rate tends to be. A home equity loan interest rate of prime + 0.5% or 1% is considered decent, although if you’re lucky some lenders offer home equity loans at prime rate.
Set up costs

It’s important to recognize that there may be costs involved in setting up home equity loans. Costs typically include appraisal fee and legal costs. Your lender may cover them, but oftentimes you’re responsible for them. It can add up to $1,000 or more in additional costs in some cases.
Switching Costs
When your mortgage comes up for renewal, a home equity loan will make it tougher to shop around. That’s because your mortgage is registered with a collateral charge. Only certain lenders will be able to accept your mortgage and you may be required to pay a higher interest rate.
Besides higher interest costs, there might be switching costs, including higher legal costs than you’d otherwise pay when switching a mortgage with a standard charge.

About the Author:

Sean Cooper is the bestselling author of the book, “Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians”. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. Sean is a personal finance journalist, money coach and speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense.

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