To understand what type of loan you should get as a homeowner, you need to evaluate your financial goals, current home equity, income stability, and how soon you need the funds. Here’s a clear, step-by-step way to decide:
1. Define Your Purpose
What do you need the money for?
| Purpose | Best Loan Option(s) |
|---|---|
| Home renovations | HELOC, Second Mortgage, Refinance |
| Debt consolidation | Second Mortgage, Refinance |
| Emergency expenses | HELOC, Personal Loan |
| Buying another property | Refinance with cash-out, Second Mortgage, Bridge Loan |
| Business or investment funding | Second Mortgage (private), HELOC |
| Ongoing cash flexibility | HELOC |
2. Assess Your Home Equity
Calculate your home equity:
Home Value – Mortgage Balance = Equity
Then calculate your Loan-to-Value (LTV):
(Mortgage + New Loan Amount) ÷ Home Value
- Most lenders in Ontario allow up to 80% LTV (including all mortgages combined).
- Reverse mortgages (for 55+) allow up to 55% LTV.
3. Consider Your Credit and Income
| Situation | Consider This Option |
|---|---|
| Good credit, steady income | HELOC, Refinance with bank |
| Poor credit, irregular income | Private Second Mortgage |
| Retired or 55+ with fixed income | Reverse Mortgage |
4. Compare the Loan Types
| Loan Type | Key Features |
|---|---|
| HELOC | Flexible borrowing like a credit card, interest-only payments |
| Second Mortgage | Lump sum loan, higher interest, quick access |
| Cash-Out Refinance | Replaces your existing mortgage with a new, larger one |
| Reverse Mortgage | For 55+, no monthly payments, repaid when you sell/die |
| Home Equity Loan | Lump sum with fixed payments (less common in Canada) |
| Personal Loan | Unsecured, easier but higher interest |
5. Estimate Your Timeline
- Need funds immediately? → Private second mortgage or HELOC
- Planning long-term? → Refinance or home equity loan
- Just want flexible funds for later? → HELOC
🧠 Quick Decision Gri
| Situation | Recommended Loan Type |
|---|---|
| “I want cash fast and don’t qualify at the bank” | Second Mortgage (Private) |
| “I need flexibility but don’t need it all now” | HELOC |
| “I’m older and want to supplement retirement” | Reverse Mortgage |
| “I want a lower rate and can refinance” | Cash-Out Refinance |
🧾 Final Tips
- Always compare interest rates, fees, penalties, and repayment terms
- Consider talking to a mortgage broker who can assess multiple options
- Use a mortgage calculator to estimate your payments under different scenarios
Consider speaking with a mortgage broker. They will help you to go through this steps in the most streamline way and will help to compare available options. To connect to a local mortgage broker fill in the form below.
