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Most homeowners will be familiar with the concept of home equity: you take out a home equity loan, convert your equity to cash, and, voila, you have an effective way to achieve many of your financial goals. Whether it's starting a business, funding education, or investing in a property, you'll be able to do it all with your home equity.

However, is it too good to be true? In this article, we break down the pros and cons of home equity in Ontario. Let's get into it.

What is a home equity loan?

Let's start with the basics. In Ontario, a home equity loan is a second mortgage that allows homeowners to tap into the equity existing in their home. Equity is understood as the difference between your home's value and your mortgage balance.

How does the loan work? Well, it is paid out in a lump sum and remains secured by your home. The loan repayment term can range from anywhere between five to 30 years. Lenders typically have strict qualifiers for home equity loans. Some of the standard requirements can include higher credit scores and less flexibility on debt-to-income ratios. 

There are two primary kinds of home equity loans:

1. Fixed-term loan: This is a one-time lump sum loan. It is paid back only every month with fixed and consistent payments each month.

2. HELOC: Home Equity Line of Credit, or HELOC, is a line of credit that provides access to funds at a competitive interest rate. Lenders typically need a 20% equity down on the home and a good credit rating as well.

Home equity loans are a popular choice because many homeowners are sitting on a gold mine. As you're paying off your mortgage, you're accruing value on your house, which can then be put to good financial use. And that's where home equity loans come in!

The Pros of a Home Equity Loan

Let us now look at some of the main advantages of taking out a home equity loan. Some of the pros include:

1. Fixed interest rate: Home equity loans have a locked-in interest rate, unaffected by the general rising and falling of interest. This rate will be set for the loan duration, which is extremely handy as it allows homeowners to budget accordingly.

2. Lower borrowing costs: Borrowing rates on personal loans, credit cards, and other lines of credit can often be high. This is because they are unsecured. With home equity loans, you'll be using your house as collateral, which results in lower borrowing and interest rates.

3. You can use the funds in many ways: Once you take out a home equity loan, you'll have the freedom to use the funds in virtually any way you please. Whether to finish your college degree, use it as retirement income, renovate your home, manage debt, and even cover emergency expenses—your home equity loan will have you covered. You can also use it as a starter to feed your other investments or combine your bill payments. Thus, it is an excellent option for homeowners looking for cash for a myriad of purposes.

4. Potentially tax-deductible: Sometimes, interest payments on home equity loans may be tax-deductible. This depends on which province you're in, but you may qualify to deduct your interest payments from your gross taxable income.

The pros of a home equity loan make it very compelling! Let's take a look at some of the cons.

Different Ways to Use Home Equity Loans

The following are different ways you can use home equity loans in Ontario:

1. Manage unexpected expenses: You can use home equity line loans to manage your unexpected expenses such as job loss, sudden injury, or other emergencies. 

2. Consolidate debt: If you need to consolidate high-interest debt (such as a credit card) then a lower interest rate combined with a payment plan can help you manage it better (note: it won't completely solve your debt problem). 

3. Property or commercial investments: Some individuals choose to use the money they get from the loan to put into investments. Make sure you assess the risk of this before doing so. 

Taking out a loan of any kind is a huge decision! And with your house as collateral, this one will even be a bigger decision. 

If you don't have much cash saved up, don't worry. You likely have a lot of home equity that you can use for a variety of purposes, such as the ones listed above. A home equity loan is a wise choice for such homeowners requiring the extra finances for any of life's curveballs. It's fast, easy, and less expensive than refinancing. At the end of the day, though, only you can tell if the pros outweigh the cons for this significant financial decision.

Our only suggestion is to set yourself up for success, which means going with a reputed and effective home equity loan broker in Ontario. After all, you worked hard for your home, so why not let it work for you?

At Canadalend.com, we provide a locked-in fixed rate with lower interest rates compared to credit cards. Our expert team looks at your home value and outstanding loans rather than other qualifications such as credit history or citizenship. Get started with the perfect loan today! For more information on home equity in Ontario, call Canadalend at 1-866-422-6536 or contact us here.

Both home equity loans and home equity lines of credit (HELOC) are ideal for homeowners looking to fund their next financial goal. You get to use your home as collateral, which is perfect for borrowing money against, especially if you’ve already paid down a significant chunk of your mortgage. However, although similar, these financial options don’t work out quite the same, nor do they always provide the same result. 

To utilize either option to your advantage, you’ll need to know the ins and outs of both. Keep reading to learn the critical differences between a home equity loan and a home equity line of credit in Ontario.

Home Equity Loan

A home equity loan is a fixed-term loan that is taken out based on the built-up equity of a homeowner’s property. These loans are often referred to as a “second mortgage.” To take out a home equity loan, all you have to do is apply based on your needs. If approved, you’ll get the money in a lump sum amount upfront, with a fixed interest rate and a monthly schedule for pre-fixed payments. 

What is important to note here is that your home equity will work as collateral. For this, there needs to be enough equity existing in the home. Lenders will determine if it’s enough based on how much of the mortgage is already paid off. Some other qualifying factors include the combined loan-to-value ratio and credit score.

A benefit of home equity loans is that the interest rate is fixed, with equal amounts applied through the loan’s lifespan. The loan term can be anywhere between five and 30 years, but your interest rate will be locked in for the entire period. This means you can set an accurate budget and map out your financial goals around this fixed amount.

Home Equity Line of Credit (HELOC)

A HELOC allows borrowers to take out money against the credit line up to a preset limit. The borrower then makes the payments, and is then able to take money out again. This is unlike a home equity loan, where the borrower receives all the funds at once. With a HELOC, the borrower can tap into the line of credit when it is needed. This then affects the minimum payments, which are dependent on the total amount borrowed. 

With a HELOC, too, the credit is secured through the equity in your home. However, unlike a personal loan or credit card, a HELOC is secured. Since your home is collateral, any missed payments can lead to the foreclosure of your home.

Another critical point to note is that HELOCs have a variable rate of interest. The rate is subject to change, and can increase and decrease as rates fluctuate. However, some lenders do offer a fixed interest rate, so be sure to check with your borrower on that front. HELOCs also provide the flexibility to borrow as much or as little as needed, although this is subject to the credit limit. The borrower also knows the maximum they can potentially take out, which is beneficial for budgeting and financial planning!

What’s the difference?

One of the main differences between the two options is that HELOCs offer variable interest rates, while home equity loans offer fixed rates. The payments for home equity loans are the same each month, while for HELOCs they can vary over time depending on the amount of money taken out. The reason for this difference is that home equity loans are an up-front lump sum payment, with the borrower able to utilize the money from the get-go.

With HELOCs, however, the funds may be withdrawn as needed, hence the varied monthly payments. When it comes to repayment terms as well, the two options differ. With HELOCs, there are interest-only payments to begin with during the draw period. The principal amount and interest need to be paid back afterward. Borrowers opting for home equity loans will need to start repaying the amount as soon as the loan is disbursed and the payment period commences.

Both loans provide you with cash while borrowing against the appraised value of your property. And both give you the freedom and flexibility to use the funds for whatever it may be, from education to retirement or emergency costs. However, the two loans are two different ways to secure your funding. The option you pick will depend entirely on your financial background, history, and goals.

At Canadalend.com, we believe that a home equity line of credit in Ontario is one of the best ways to borrow money. We have been helping clients secure a HELOC for years, and our expert team ensures you get the best rate possible. We will go over the options available to you, and find the perfect solution for your needs! Be sure to get in touch to set up an appointment for a free personal consultation.

For more information on the home equity line of credit in Ontario, call Canadalend at 1-866-422-6536 or contact us here.

So, you’re thinking of buying a second home in Ontario. Congratulations! It’s a great time to get back into the buying market. The housing market has made a healthy recovery, not to mention there are numerous advantages to owning property.

The demand for second homes remains healthy, with many homeowners branching out into multiple properties. Whether you’re looking for an alternative holiday property or renting it out for extra income, there is a lot that goes into buying a second home in Ontario. Keep reading to learn more.

Buying a second home is a wise financial decision. Your second home acts as the perfect investment property, whether you’re looking to rent it out or use it as a getaway for other opportunities. Property generally appreciates, meaning that you could have a sizable nest egg several years down the line. Many homeowners choose to invest in a second home for future generations to come as well.

House Usage

One of the first things to consider is how you plan to use the second home. How you use the house will determine where you buy it, how much you spend, the income you might expect, and a range of other factors. You also need to tell your lender the intended use for the property. Why? Some lenders consider second home properties less risky as opposed to investment properties. You might therefore secure a slightly lower rate of interest for such usage.

Let’s take a look at the main ways people use a second property:

1. Second-home: You can classify the property as a vacation home if you plan to use it as such. However, then you must live in the house for part of the year, and keep it for your personal use and enjoyment for half the year. The property can also be used as a short-term rental, but can’t be located too close to your primary residence.

2. Investment property: You may also choose to buy another home as an investment to rent, upgrade, or resell.

Considering your lifestyle and buying according to your needs and long-term goals is always a good idea. This will ensure your property is evergreen and works with your requirements many years down the line.

Financing

Buying a second home in Ontario is an excellent source of income that can carry you well into retirement. Most homeowners will have to take out financing of some kind to start their investment. The following are some of the lending financing options you’ll have available to you:

1. Refinancing your mortgage: If you’re thinking about buying a second home, it is likely that you already have a primary residence and mortgage at hand! The good news is that you can gain access to the existing equity in your home to finance the purchase of your second home. You can refinance refinance your current mortgage and use the money as a down payment for the second property.

2. Second mortgage: Another option is to take out a second mortgage on your primary home. Lenders and financial institutions can provide up to 85% of your home’s equity to borrow, discounting the total amount you still owe on the first loan. Your first property will then be used as collateral for your second mortgage as a guarantee.

3. Home equity line of credit (HELOC): HELOCs give homeowners flexibility, as they need not pay for the money they use, only the interest being charged. However, this does come with some caveats. You need to have a minimum of 20% of equity on your property. Some lenders also have prerequisites for credit history and credit scores.

Additional Expenses

In addition to financing, there are many expenses that come along with second homeownership. Don’t forget to include insurance and maintenance costs when calculating your budget for the project. A big part of living in Ontario is the winter weather and snowstorms, so your insurance might be higher to cover any unforeseen issues. Or, if you live in an area with a higher risk of flood or forest fires, that might bump up your insurance too.

It is better to get an approximate quote for insurance before buying the home so you know exactly what to expect. Maintenance and repairs can also set you back significantly. A good rule of thumb to estimate finances is to set aside approximately 2% of the home’s value every year for maintenance purposes.

An essential part of buying a second home is the second mortgage that comes with it. If you’re looking to take out a mortgage in Ontario, look no further than Canadalend.com! We help clients with all income and credit types to secure mortgages for the home of their dreams. We have unique access to a large pool of banks, credit unions, and private lenders to ensure you get the best deal for your financial situation.

For more information on buying a second home in Ontario, call Canadalend at 1-866-422-6536 or contact us here.

Recent modifications to Canada’s mortgage regulations have forced homeowners to borrow from alternative lenders, often at higher interest rates than they can obtain through a bank.

There are several misconceptions about private lending that lead some developers and investors to avoid it. Private lending has a reputation for being slow, costly, and inflexible. Since several lenders entered the market without the resources to deliver on their promises in the past few years, many of these misconceptions have grown.

Many of these new lenders have exited the market in recent months, leaving the way open for experienced lending businesses to benefit. To secure funding from this sector, you are going to have to take the right approach. Private lending is much faster than banks when it is handled correctly.

Banks typically pigeonhole each transaction based on its credit policy, and don’t evaluate each on its merits as do private lenders. Private lenders aren’t controlled by banking policy.

Private lending is perceived as being more expensive because of the flexibility of approvals. However, faster project funding is possible through private lending, and is essential in some cases where the slow approval processes by banks can cause developers to lose out on great opportunities. 

In spite of the higher interest rates, you may increase your profits at the backend of the transaction by being the first to market as you start your project earlier in the cycle. In addition, it is usually a short-term loan (at 6-24 months), so the effect of higher interest rates (that are more competitive now than ever before) is not as dramatic.

It’s not uncommon to use private lending as a bridge to bank financing. A direct approval system is another benefit of private lending—you are dealing directly with the people making the decisions.

The non-commercial approach used by banks overcomplicates transactions, and does not provide the transparency expected by developers. On the other hand, you have certainty of outcome with private lending and the contract is fixed.

Buying Your First Home

How do private lenders work?

A private lender may be a corporation that pools investors’ capital or an individual lending their own money.

Unlike banks and credit unions, private lenders do not take deposits, so they are not subject to the stricter regulations that govern the way they lend. This enables private lenders to make riskier loans.

Investing in properties is a great idea if you have access to private money lenders. Borrowers view investment properties in the same way that private money lenders do: as an investment.

Private Loans: 6 Misconceptions and Truths

Misconception 1: A private lender is unethical and offers loans illegally

Truth: The borrower’s property as collateral secures your investment. Loans secured by real estate must be originated by licensed mortgage brokers. Provincial lending regulations apply to private lenders. There are rules that private lenders must follow despite not being regulated as strictly as banks. The process of obtaining a private loan is managed by a lawyer. Mortgage Commitment letters drafted by lawyers are required to be signed by the borrower and lender.

Misconception 2: Taking out private loans is the last resort for desperate borrowers

Truth: It’s likely that this misconception arises since private lenders look at a property’s marketability and overall value rather than the borrower’s credit history. When the equity in a deal is sufficient, private lenders are less concerned about other shortcomings. The majority of private loan borrowers are successful and knowledgeable individuals or businesses who happen to have financial circumstances or investment opportunities that do not meet the strict criteria of conventional lenders.

Borrowers Choose Private Loans for Many Reasons:

• A prime lender or bank isn’t willing to finance an unconventional property you want to purchase.

• An approval process that takes a long time is inconvenient for you.

• Conventional lenders refuse to lend to you due to your poor credit history.

• The loan only needs to be for the short term.

• You cannot get a traditional mortgage because your income is not verified.

Misconception 3: Lenders in the private sector are just loan sharks

Truth: Business professionals who are successful and experienced are private lenders who are willing to invest their own money in loans that they believe will provide the highest possible return on investment. Having control of their funds, they can choose how to use the loans. Since private lenders are usually small companies, they rely heavily on referrals, word-of-mouth, and their reputation to attract customers. As a result, it is easy to distinguish honest private lenders from the dishonest ones as long as you do your homework.

Misconception 4: A private loan is too expensive

Truth: Obtaining funding quickly enough (for example, to take advantage of a discounted purchase price or to dissolve a partnership that needs fast cash) often cancels out the higher borrowing costs of private loans. In order to determine whether a private loan would be beneficial to your deal, you must consider all the lending factors.  

Misconception 5: Private lenders give risky loans

Because private lenders do not lend someone else’s money (as opposed to employees of institutional lenders), they are less likely to approve truly risky loans. 

Truth: Typically, a private lender will only approve a loan against a property whose value can be determined with a reasonable amount of confidence, regardless of how financially savvy or experienced the borrower appears to be, or how strong his or her track record may be. Nevertheless, private lenders may be perceived as risky because they understand local markets well and may approve loans that other lenders may deem too risky.

Misconception 6: Lenders in the private sector try to beat banks

Truth: There is no competition between private lenders and banks, nor are they intended to replace them. It is likely that a private lender can assist you if you cannot get the funds you need from a bank. When your credit rating is less than stellar, the stress test cannot be passed, or you need flexibility in the loan structure, then private loans are especially worth considering if you own your own property.

For more information on private loans in Ontario, call Canadalend at 1-844-586-0713 or contact us here.