Should You Use Your Home Equity for a Loan or Line of Credit

If you’ve had a mortgage for quite some time, you can use the home equity you’ve built to take out another loan. Through regular payments and long-term reliability, you have established yourself and the financial loan industry will reward you with more access to funds. One of the ways you can take advantage of your current status is by using your home equity as collateral. It’s important to consider what your home equity position is. Have you been paying off your mortgage for a long time and have a lot of equity? Your equity builds up every year in your property and as you pay off the loan, you’re also increasing that equity.

What is Equity?

It’s the percentage of the property that you own due to the repayments you’ve been putting on it since you first borrowed money to purchase.

It’s become more popular for borrowers to use the equity they’ve created for a second loan. They’re known as Home Equity Loans (HEL) that should be used wisely. We don’t suggest you use this type of loan to go on a luxurious vacation or purchase an expensive dirt bike. It should be a wise investment that further helps you out financially for your long-term wealth. Using your home’s equity for a loan will give you a pool of money to take from when you need it. You may get a fast opportunity to purchase a home that requires a fast sale. Having the additional money to access alleviates a lot of stress and there’s little worry of paying for bills as they arise.

You can take out a Home Equity Loan and use it like you would a line-of-credit. The money is there and you don’t pay any interest unless you release the funds. You can’t overspend the amount because there is no overdraft.

Home Equity Loan (HEL)

This type of loan will be like a regular loan you’d take out. You and your bank or lender will agree on the repayment schedule, interest rates, and penalties. Often, there will be a higher interest rate on a Home Equity Loan in comparison to a standard loan. The second loan is still going against the same property so if you happen to claim bankruptcy, the first lender is paid first from the sale of the estate. There may be nothing left for the second loan so that lender doesn’t get paid. This makes it a riskier loan for the lender, which is why you’ll be paying more for it.

Of course, you’ll want to get the lowest rate you can, which is why it’s recommended that you do your research and ask a few different lenders about their interest rates. You can discuss your options at major banks but if you find the interest rates are too high, you may want to seek out an alternative lender. They can often give you better rates than the bank would with more flexible terms, fees, and penalties.

A lot of time, people take out a Home Equity Loan to pay off their bills. If this is what you’re considering it for, the bank will want to see a good credit score and proof that you have predictable earnings for the future.

Home Equity Line of Credit

When you get accepted for a home equity loan, you can opt to have it in the form of a line of credit. The equity in your property will determine the amount you can borrow. Instead of being given a lump sum loan that you’ll start paying interest on, there will be a pool of money you can use as you need it. It’s good for borrowers that want to use their loan for a variety of things. If you’re planning to do a renovation on your home, you can pay for it out of your line of credit as needed.

Home Equity Lenders

The lender that is going to approve or deny your loan will look through your details closely. It’s important to note that a Home Equity Lender will often get the worst deal if you claim bankruptcy. When you deal with a bank, they will make you pay a higher rate because of the risk they’re taking in the event that you do claim bankruptcy. It’s basically how they protect themselves if you do have to file for bankruptcy.

Generally, if you’re going to take out a Home Equity Loan, you can find better rates with alternative lenders. This include credit unions around Canada and other types of financial institutions. Not only can you take advantage of lower interest rates in comparison to what the bank will offer you, these lender are more flexible. There are a lot of options when it comes to alternative lenders. It may actually be overwhelming. While there are some nice numbers with interest rates, you really need to look at the fine print to ensure you know what you’re signing up for.


You may even want to consider using an independent expert that has access to a variety of lenders and their products. They aren’t like your traditional bank advisors as they’re on your side and will be looking to find you the best products as opposed to selling you a certain product. They work for you and will help you find a lender.

They will take into consideration what your needs are and go through their list of qualified lenders. You can choose from a Home Equity Loan or a line of credit. As this is a big investment that can stay with you for years, you want to have all the available options with flexibility that suits you.

Whether you opt to refinance your home, borrow a prepaid amount or open a home equity line of credit (HELOC), the right lender is out there for you. Connect with a home equity loan provider in Canada!

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Loraine Couturier

Loraine Couturier is a Canadian that has been working as a freelance writer for the past ten years, specializing in topics that include personal finance, medical journals, and the online gaming industry. She is a published author, digital marketing expert and an authority in the fields in which she writes about.