If you are a homeowner and you need to borrow cash, one of the ways that you can do so is through a home equity loan. While many Canadians use a personal line of credit or credit cards when they want to borrow money, there are some good reasons to choose a home equity loan instead.
What is a home equity loan?
A home equity loan is a type of second mortgage. It is a loan which is secured using the equity in your home. Interest rates will be higher than they will be on a first mortgage but still much lower than other forms of loans. Most lenders who provide home equity loans will allow you to borrow up to 80% of your home’s value (although there are a few who will let you borrow more). You home equity is determined by the value of your home minus what you owe on it.
So to put this in perspective, if your home is valued at $500,000 and you still owe $350,000 on it, you will be able to utilize up to 80% of your home’s value and be approved for a home equity loan of up to $50,000.
Reasons you might want a home equity loan:
As stated, there are some good reasons why many homeowners in the GTA choose home equity loans. Some of those reasons are as follows:
Don’t need perfect credit
Since the main criteria for a home equity loan is how much equity you have built up in your home, you don’t have to have perfect credit to quality. Unsecured loans such as personal lines of credit will most certainly be harder to attain if your credit is poor.
Lower interest rates
Because the interest rates on home equity loans are lower than on other types of loans (such as credit cards), it is an inexpensive way to borrow for large expenses such as starting a business or completing a major home renovation. Home equity loans can also be a good tool for consolidating higher interest debt in order to get out of debt faster.
Because you are borrowing against your own home equity, you don’t generally have to jump through a lot of hoops to get approved. This means that you can borrow a fairly large amount of cash and get approved within a short time period.
Are you interested in learning more about home equity loans? If so contact me today and I can help you decide if this is the right type of loan for you!