Need a Home Equity Loan in Ontario? Here Is What You Need to Know for 2019

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A home equity loan is a home loan that requires a piece of real estate to be used as collateral or security. This loan is provided as a mortgage on a piece of property. The amount someone can borrow from this type of loan is based on the equity of the property used as security. Because of this, a homeowner who needs a home equity loan should have a relatively significant amount of money paid on the property versus the debts taken on the property. Note that a home equity loan is not the same as a bank mortgage.

Home Equity Loans in Ontario

In Ontario, a typical home equity loan comes with an interest of 7% to 15% as a one-year open first mortgage or second mortgage. Most of the time, an option to end the mortgage early is part of the terms. In such cases, the borrower will only have to pay a penalty fee equivalent to three-month interest. In this regard, home equity loans are much more forgiving than traditional mortgages from banks and can also be made in such way that will fit the borrower’s specific situation. The terms can be drawn up between the borrower and the lender with the help of Canadian mortgage professionals.

What is the Limit for a Home Equity Loan

The amount of existing debts on the property and the current value of the property in question are major factors in determining how much a homeowner can borrow as a home equity loan. Lenders will also calculate the LTV or Loan to Value ratio and adjust what they can lend accordingly. Some lenders may also consider employment history, source of income, and credit score as additional metrics.

Using a Home Equity Loan in 2019

The common uses for home equity loans remain the same. Most people either use their home equity loan to fund a home renovation or to pay expensive debts (debt consolidation). Some use their home equity loan as capital for a new business and some use it to pay for higher education.

Please know that the best uses for home equity loans are expenditures that give value back to you. If you can, refrain from using it to buy luxury bags, gadgets that you don’t really need, or spend it in gambling.

Is a Home Equity Loan the Same as a HELOC?

Although a home equity line of credit may sound almost the same as a home equity loan, they are different types of loans. A HELOC allows you to use up to a predetermined amount in a revolving manner whereas a home equity loan is given to you as a lump sum with a fixed interest rate and payment. If you need to know more, you can talk to us at Mortgage Central Canada so we can discuss which may be better for you.

Are you thinking of applying for a home equity loan in Ontario and nearby areas? Contact us and we’ll try to make the process as easy as possible for you!

The Pros and Cons of Home Equity Loan Lines of Credit

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Do you know that about 3 million Canadians have an existing home equity line of credit but survey says that half of us don’t truly understand how they work? According to survey, 35% of people in Canada have a home equity line of credit and 19% admitted that they borrowed more than they intended.

Rising Popularity, Will it Lead to Downfall?

Home equity lines of credit have risen in popularity over the past 15 years and yet survey says that a significant number of Canadians don’t really understand home equity loans work and when they should be paid.

According to the study released by FCAC or the Financial Consumer Agency of Canada, more than 3 million Canadians have a HELOC with an average debt of about $65,000. In fact, more than 25% of those who have a HELOC has a balance of more than $150,000 and 25% also admitted that they only pay the interest payments per month.

Crunching the Numbers

4,800 Canadians were surveyed by Ipsos on behalf of FCAC to determine the need for more financial education back in the middle of 2018. 35% of those surveyed have a HELOC while 54% have a mortgage.

FCAC communications strategist Michael Toope says that HELOCs are undoubtedly cheap sources of credit and that Canadians may need more information on how to use HELOCs well.

Just to note, a HELOC is a revolving type of credit product that is secured by home equity. A borrower can get access to a ceiling of about 65% of the value of the home via HELOC and application is a breeze considering that HELOCs are often offered by banks to people with home equity.

The Problem

The issue with HELOCs and other types of home loans is that they can be too easy at times to apply for, resulting in people with little to no understanding getting a home loan that they do not know how to manage, much more repay. This results in unwise spending and struggling with debt later.

While a HELOC and other home equity loan options are designed to provide temporary financial relief, improper use and failure to pay can lead to a borrower losing his or her home. The lack of knowledge of consumers who has a HELOC is the real culprit behind giving home equity lines of credit a bad name in recent times.

Although it is true that interest has been climbing up since 2017, the real issue is financial mismanagement due to not understanding borrower’s responsibilities and consequently, neglecting them.

Are HELOCs Risky?

Yes and no. For the two-thirds of Canadians who told the survey that they only use their HELOC as a revolving line of credit, a HELOC is a financial tool to help them manage their money better and even build wealth. For those who don’t pay on time and spend beyond their means, a HELOC can be a disaster in the making. The key is financial education.

Are you worried about getting a HELOC? Do you need help understanding what a home equity line of credit is and how you can use it to your advantage? Contact us and we’ll be happy to answer your queries. Our mortgage professionals will help you assess whether a HELOC is right for you.

You May Not Know This Yet About A Second Mortgage

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Getting a second mortgage is a huge financial step that requires thoughtful consideration and planning. It isn’t something that you can do just out of the blue or for no real reason because getting approved for a second mortgage means getting a home loan with your property as the collateral. It is best to make sure that you truly understand what you’re getting yourself into before getting a second mortgage.

Is a Second Mortgage Risky?

Like any other secured loans, a second mortgage carries risks for the borrower as well as the lender. The lender shoulders the risk of not getting paid because of the nature of the second mortgage as a secondary loan; and thus, not a priority for payment like the primary mortgage. The borrower carries the risk of losing his or her home if he or she can’t honour the terms. The risks are real but they shouldn’t be an issue if the borrower has the ability to pay and the wisdom to not borrow more than what he or she can afford.

Reasons for Getting a Second Mortgage

People apply for a second mortgage for a variety of reasons. The most commons ones are to fund a home renovation, pay for higher education, or to spend for a big project. Another possible reason is not wanting to break the terms of an existing mortgage as well as avoid having to pay associated fees. Some people apply for a second mortgage so that they can use their home equity for debt consolidation.

With the above said, it is easy to see how getting a second mortgage can be of great help as long as the funds acquired are used in a smart way. One doesn’t have to be in dire financial straits to consider getting one.

Fees and Interest for a Second Mortgage

Because a second mortgage is riskier for the lender as compared to a primary mortgage, it is understandable that the interest rate is also higher. However, it is not as high as the interest imposed for personal loans such as those for credit cards.

Note that a second mortgage comes with standard fees as well as other possible fees if you decide to pay more or pay earlier. To make sure that you’ll not be charged penalty fees, read the fine print in your second mortgage terms and familiarize yourself with the second mortgage ‘rules’ that apply to your loan contract. Your mortgage broker should also help you understand the terms if you availed of professional mortgage services.

Should You Get a Second Mortgage?

A second mortgage can give you convenience and financial elbow room to help get you right on track if done right. You must consider what you’ll be using the loan for as well as your cash flow for the duration of the terms to make sure that there won’t be issues. The benefits must outweigh any possible cons. Do you need professional help for getting a second mortgage? Contact us and we’ll do our best to be of assistance.