Home equity lending is a great option for homeowners who want to cash out on equity from a property value increase to use for investments or who need to consolidate high interest debts into one payment at a lower interest rate.
Home equity lending is a way in which you can get a loan that is secured against the equity you have in your home. It can also be called equity release as it, effectively, releases the value you have in your home.
There are several types of home equity lending options available, with some being more useful to your circumstances than others.
Home equity line of credit (HELOC) creates the ability to regularly borrow from the equity in your home. After one loan has been borrowed and repaid, another loan can be taken with the option to borrow always remaining open for as and when you need it.
A home equity loan is a one-off period of borrowing money in the same style as a traditional loan. Once the loan and interest has been repaid, the contract is concluded.
It is also possible to take advantage of the equity in your home using a 2nd or 3rd mortgage. Whether or not this option is available to you will depend on the amount of equity you have with your first mortgage.
Refinancing means rearranging your existing home financing in order to get a better deal or change the loan amount, such as by obtaining a new mortgage. Home equity lending means borrowing against the equity you have in your home without adjusting the existing mortgage.
In general, a homeowner can borrow up to 80% of their home’s value, including the value of their mortgage. So, if a homeowner has a home worth $500,000, with a $300,000 mortgage balance, the maximum additional borrow amount would be $100,000.
Homeowners with good credit and financial situations can qualify easily through any of the big banks for a mortgage refinance. Homeowners with less than good credit, debt, or other financial issues, are more likely to benefit from a private mortgage refinance through a private lender.
Traditional lenders are the big banks in Canada. They offer the most straightforward terms and rates, and are generally a good option for homeowners with good credit and regular financial situations. That said, they have the most stringent eligibility requirements, so anything outside the norm will leave a homeowner with a non-approval and in need of an alternative lending solution. Private lenders help fill the gap for homeowners who aren’t able to get approved by a traditional lender. Private lenders offer more flexible approval terms that are useful for people with bad credit, missed payments, mortgage arrears, taxation issues, citizenship issues, or those who are self-employed or have no proof of income.