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Have you been thinking about investing in property, but don’t have the funds? You can apply for a loan from many lenders if you meet their requirements. Nonetheless, you should explore all of your borrowing options, and ensure you work with only the best lenders before agreeing to an agreement.

Private lenders are a popular choice in the real estate market, and they have many advantages. Prior to taking the plunge, you need to educate yourself about private lenders if you have never dealt with one before. You will benefit from a private lender in the following ways:

1. Generally, private lenders have fewer requirements

The paperwork and requirements are one factor that discourages people from applying for loans. Compared to traditional lending institutions, private lenders have much fewer requirements. The only requirement for borrowing against a property is sufficient equity, enough cash for payments, and a sound exit strategy.

When you have few requirements, it will be easier for you to get your loan approved. The majority of lenders with a lengthy list of requirements will decline loan applications. By making qualifying for a loan difficult, they hope to keep away borrowers, as opposed to private lenders.

2. Flexible loans are offered by private lenders

Different variables need to be considered when applying for a hard money loan. Examine the interest rate, loan fees, and other requirements. A private lender allows you to negotiate all these terms, and you can choose the ones that are most advantageous to you. Several lenders are available, so you can compare their terms until you find the one that suits your needs. With such flexibility, these loans are among the best options available.

3. Control over the process is 100% yours

You determine the terms of your real estate loan when working with a private lender. Generally, the type of loan allows you to control the process to an extent. You have the ability to make every decision you want without sacrificing anything. It is not necessary for either you or the lender to adhere to strict policies outside of the company. You can negotiate all of the terms of the loan facility with the lender; he or she will determine the best interest rate. You can use this to establish a more positive relationship with your lender.

4. Collateralizing property with real estate

A borrower is more confident in his or her loan if they have collateral. As well, private lenders don’t have to be concerned when they lend huge amounts since there are backup plans in case things don’t work out. In addition to being able to get a large loan amount with collateral, real estate loans are also faster and easier to get approved for.

5. Improvement of creditworthiness

Private lenders can increase your credit score if you take out a loan from them. Your future financial history can be greatly impacted by debt depending on the situation. Your lender will have more trust in you if you borrow and pay on time. A positive track record for 12 months is often required by lenders to ensure a good credit history with private loans.

You will have better opportunities to get a new loan if you have a good credit score. Those who want to improve their credit scores should make sure they don’t miss any payments.

6. Getting a loan approved and funded quickly

Private lenders are best because they provide your loan application approval quickly, and the money appears in your account swiftly. Your loan could be approved in just a few weeks, and you’ll have the money in your bank account within hours. Your only task is to make sure everything is in order during the application process, and arrange an appraisal as soon as possible.

In the loan process, private lenders look at factors like the property you own, the down payment you made, and your equity. The exit strategy for the property is also examined, as well as the cash reserve for the loan payment. The money will be sent to you immediately if all of these appear reasonable.

7. Private lenders can provide funds to projects if they cannot otherwise be funded

Traditional lenders like banks are hesitant to finance projects that private lenders are willing to finance. A fix and flip loan, for example, does not typically work with traditional bank financing. Investors purchase properties, do renovations, and then sell or refinance them using short-term loans.

These short-term loans may not be offered by other lenders because they must pay interest over the long term. Investors may also need to take out private loans if the property is in poor condition to qualify for a bank loan.

8. Simpler process for approving loans

The process of applying for a loan is simplified with fewer requirements. So long as consent between two parties is present, the loan process is relatively straightforward for both lenders and borrowers. Borrowers are able to take advantage of better facilities and traditional loan advantages.

Additionally, the lender would benefit from this, as nothing would slow down the issuance of loan funds since the collateral can be used immediately. These benefits translate into flexible and straightforward hard money lending for both parties.

Summary: Lenders of Private Equity Come to the Rescue

Investors in real estate have the best chance of financial success when they take out a loan from a private lender. Understanding all the requirements and the risks involved is vital before submitting an application. By shopping around, you can find various lenders, compare their terms, and choose the most appropriate one.

When buying property right away, a private lender will close your loan faster, and with less aggravation for you. The borrower will also be able to grow their business faster, which will justify the additional short-term costs associated with a private lender.

Real estate investors should not select the lender based solely on its lowest cost. It can take weeks or even months for a potential borrower not to qualify for a bank loan to receive a decision, whereas a private lender can approve them in a matter of days and then fund the loan.

There is a possibility that the most affordable loan at the beginning may be the most expensive one in the end.

To learn more about private lenders in Ontario, call Canadalend at 1-844-586-0713 or contact us here.

It may seem tempting to pay off your credit card debt all at once if you have a lot of it. Some people find the best way to do so is with a home equity line of credit (HELOC). A home equity line of credit can be used to pay off old debts and consolidate new ones, and HELOCs usually have much lower interest rates than credit cards. However, there are risks associated with using a HELOC, including losing your home. The following information will explain how to make use of a HELOC to repay credit card debt.

What is a HELOC (Home Equity Line of Credit)?

If you have equity in your home, you can use a home equity line of credit, or HELOC, to get funds. Home equity lines of credit do not require that your home be fully paid off.

A HELOC works by providing you with a line of credit based on a percentage of the value of your home, minus what you owe on the house. You can get $300,000 in credit if, for example, your home is worth $800,000, but you still owe $100,000. By taking out a HELOC at 50 percent of the value of your home and subtracting the $100,000 you owe, you can obtain $300,000.

You can borrow money from a HELOC, pay it back, and borrow again. Revolving credit is similar to a credit card. The key difference between a HELOC and a home equity loan is the fact that the latter offers a single lump sum that must be repaid within a set timeframe.

An average HELOC lasts for about 25 years, including both a draw period and a repayment period. It is possible to draw money from your line of credit during the draw period, which can last for up to 10 years. In the repayment period, which lasts through the remainder of the HELOC’s term, you will no longer be able to withdraw money from the line of credit and must repay any debt you incurred.

During both the draw and repayment periods, you will be paying interest on your HELOC, so shop around beforehand to secure the best interest rate.

Some Questions to Ask Lenders

• If you want to qualify, what do they require from you?

• Can they offer you the best rate of interest?

• If your interest rate increases, how much notice will you receive?

• What fees are involved?

Can you consolidate credit card debt with a HELOC?

Consolidating your credit card debt and paying it off quickly with a HELOC is a commonly used method. You can pay off your credit card debt by applying for a home equity line of credit. The money you owe on your HELOC will still have to be paid off, but you will have a longer period of time in which to pay it off and the interest rate on your HELOC will likely be lower, saving you money in the long-run.

Benefits of Paying Off Credit Card Debt With a HELOC

If you have multiple credit cards, you can pay off all of them at once. A HELOC lets you pay your credit card debt entirely at once instead of in bits and pieces (like via the snowball or avalanche methods). Using a home equity line of credit to pay off your credit card debt can provide significant mental relief if you are currently overwhelmed by debt.

You Will Have a Lower Interest Rate

Most credit card’s charge interest rates around 17 percent. A typical home equity line of credit has an interest rate of 6 percent. It is important to remember that HELOC interest rates are variable, which means they can go up or down depending on the prime rate. Yet even if your interest rate goes up, it will still be much lower than credit card rates.

Disadvantages to Using a HELOC to Repay Credit Cards

If you don’t practice healthy financial habits, you may find yourself right back in the same situation once you pay off your credit card debt. Nobody pays off their credit card debt with the intention of getting back into debt right away, but you may be back right where you started. A HELOC can be used to pay off your credit cards, but if you then accumulate a bunch of credit card debt, you’ll have to pay both the credit card debt and the HELOC debt. Depending on your financial situation, that might exceed your capabilities.

Your Home May Be at Risk

HELOC debt is secured debt, meaning the lender can claim whatever you put up as security if you fail to pay it off—in this case, the home. In the event that you don’t pay back the principal within the designated time period, you run the risk of foreclosure when you take out a HELOC.

Can I cancel my home equity line of credit?

It is not possible to cancel your home equity line of credit until you have paid it off. You usually have 10 days to cancel your loan if you provide written notice. For more information about cancelling, see your terms and conditions.

The Bottom Line

There are other tools available that can help you consolidate and pay down your debt quickly. During an introductory APR period, you may be able to pay off existing credit card debt with a balance transfer credit card or zero interest credit card. Once you start working with a reputable debt counselling service, this can also make it easier to manage your finances and pay off your debt over time. In order to repay your debt, you have a variety of options, one of which is taking out a home equity line of credit to pay off your credit cards.

For more information on a home equity line of credit in Ontario, call Canadalend at 1-844-586-0713 or contact us here.

Mortgages can make you feel like you've taken on a lot of debt when you purchase a home. The truth is that you should also consider the value of your new home along with the amount you paid for it to get a clearer picture of your finances. As the value of your home roughly equals the value of your mortgage debt, your overall wealth has not changed significantly.

Home equity is a useful way to assess how much wealth homeowners have in their properties. So how does home equity stack up, and for what purposes is it useful? No matter how you utilize your home equity, homeowners need to grasp the concept.

How does home equity work?

Equity is the personal wealth you hold in your home. To calculate your home equity, take the current market value of your home, then subtract any loans owing on it, such as your mortgage. Your home equity equals its full market value if you don't owe any money on your home.

Home equity is a useful way to evaluate the wealth you have built in your home, but most people use it when they want to borrow. In the case of a home equity loan, you can borrow against your built-up equity to get the funds you need. Common home equity loans in Canada are second mortgages or home equity lines of credit (HELOC). Here are some more details on home equity loans and what you can do with them.

Here’s How to Get Started (An Example of How to Calculate Home Equity)

For example, say your house is worth $500,000. If you had to put down $100,000 to purchase your home, you would have a mortgage of $400,000. The following items will not be included in your calculations for simplicity: land transfer taxes, GST/HST, mortgage default insurance, etc. 

How to Calculate Your Home Equity

If your home's worth $500,000, and you subtract your $400,000 mortgage, you are left with $100,000 of home equity. 

Now consider if a decade from now you reduce your mortgage balance by $100,000 to $300,000, and the value of your home has grown by $100,000 due to a strong real estate market. Here is how your equity is calculated: $600,000.00 (home value) - $300,000 (outstanding mortgage) = $300,000 (home equity).

Your home equity is not strictly based on how much your mortgage was paid off because it changes as the value of your home changes. Even though paying your mortgage directly increases your home equity, the real estate market in your area also affects your home equity. If the average price of a home in your area goes up by 10%, your home equity has just grown by 10%. Additionally, even if you keep paying off your mortgage, your home equity can also decrease over time, especially if market conditions are leading to reduced home values in your area.

How do home equity loans work?

Home equity is often used as collateral for home equity loans in Canada. Any loan that uses your home equity as collateral is a home equity loan. In many instances, home equity loans are used for large, one-time purchases such as university tuition fees, remodelling the house, or paying for medical care. In contrast to an unsecured loan, a home equity loan results in a lien placed on your house by your lender. If you cannot make your payments, your lender can take control of your home and sell it to get repaid.

A home equity loan will usually have a maximum amount that can be borrowed. This is often a percentage of your home's appraised value, usually around 80%. Your home equity loan percentage will vary based on the type of loan you use. The four most common home equity loans in Canada are listed below:

Second Mortgages

A second mortgage is what we call a home equity loan, and it is exactly what it sounds like. You can borrow part of your home equity as cash in addition to your primary mortgage. The total mortgage amount cannot exceed 80% of the market value of your house.

Compared to regular mortgages, second mortgages carry much higher rates. Second mortgage lenders fall below primary lenders in the case of a default because they are considered lower priority lenders. Consequently, second mortgage lenders are exposed to a greater level of risk.

Home Equity Line of Credit (HELOC)

You may also hear the term HELOC or home equity line of credit bundled with your primary mortgage. Rather than a lump sum of cash, the lender sets up an account you can withdraw from during the term of your mortgage. This account allows you to remove an amount at the beginning of your term, but your total credit available cannot exceed 65% to 80% of the total value of your home.

When you withdraw funds from a HELOC, you must repay the interest accrued monthly. When you use a HELOC, you remove the funds as cash rather than using them for purchases, like with a credit card. However, the rates on a HELOC are lower than those on a credit card since it is a secured loan.

Refinancing Your Mortgage

You can also access your home equity by refinancing your mortgage. Your mortgage lender will let you borrow more money when you refinance. You may borrow up to 80% of your home's total value. Your new mortgage rate may be higher than the one you paid before. Refinancing does not require you to take out a second loan.

Reverse Mortgages

Reverse mortgages can also be considered home equity loans as a specialized product. Reverse mortgages are typically used to fund retirement by elderly Canadians who lack the pension or the cash to live comfortably.

Those over the age of 55 can borrow up to 55% of their home’s total value through reverse mortgages in installments or a lump sum. The borrower does not have to make payments on a reverse mortgage until the loan is due, which occurs when the home is sold, or the borrower dies. Repayment of the loan is usually made from the proceeds of the home’s sale. A reverse mortgage will compound interest at a higher rate than both a regular mortgage and a home equity line of credit.

Accessing the Equity in Your Home

Equity in your home is only a measure of where you have assets. This is crucial since it shows you the sometimes hidden value you have locked inside your house. When you need a loan to make a major purchase or pay off debt, your home equity may be your biggest asset. To make informed financial decisions, you need first to understand what home equity is and how you can borrow against it.

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

It can be stressful to raise the cash to finance a home renovation project, which is usually why those projects get put on hold. 

As you consider refinancing your mortgage to pay for your home renovations, be sure to reduce your outstanding credit as much as you can and pay your bills promptly before you apply so that you can get the best interest rate possible. You will be able to make small, consistent payments throughout the term of the loan instead of having to exhaust your savings. That is one advantage of refinancing your mortgage for home improvements.

What improvements will you make?

Make a list of the things you like and dislike about your home. Rethink your current lifestyle and how each room is used, and whether there is any space, you would like to improve. Refinancing your home mortgage may be the best way to fund your big home renovation projects without compromising your other financial goals. However, your improvements may not justify a mortgage refinance if they are small and more manageable.

Hire a Contractor Versus Do-It-Yourself

DIY allows you to save money, but you need to consider the complexity of a project, what tools you'll need to complete it, how confident you are with your ability to execute the project, and how important it is to your home. 

Whenever possible, connect with friends/family who has recently renovated and ask them for recommendations based on your needs. Compare quotes from different contractors to ensure you're getting the best deal. Make sure you choose the right contractor (from a skillset or even personality perspective) before you start the renovation project to avoid a lot of extra stress.

Renovation Benefits

Renovating a home can be stressful, but the result should be fulfilling. A new main bedroom, a brand new bathtub, or new kitchen countertops all deliver a unique sense of excitement and can significantly grow your home equity. Most renovations will increase the value of your home, increasing your home equity and helping grow your wealth.

Renovations: Return on Investment

As well as investing in your dream home, completing home renovation projects will add value to your house. The first time you buy a home is typically the largest investment of your life, so renovations that increase its value always make the most sense, especially if you use refinancing to pay for it. When deciding whether to stay put until your kids graduate from college or if you plan to live in the house for the foreseeable future, you should consider the return on investment of each home renovation project that you take on.

After Refinancing

When your home undergoes a major renovation, its value will increase. Refinancing after this may sound nice, but you may not be sure if it's a good idea. If the right circumstances exist, refinancing a mortgage after a home renovation can be quite advantageous. Whether you decide to refinance depends on what your goals are. 

Here are a few things you might want to keep in mind when considering refinancing and if you should do it before or after renovations.

Cash-Out Refinancing

A cash-out refinance occurs when you refinance your mortgage for a higher amount than what is owed on the home, but less than its total value. The reason some homeowners choose this method is to get cash from their home equity and/or a lower interest rate on their mortgage. 

The difference between the value of the old loan and the new loan will be paid to you in cash. You can use this for whatever you want, including funding renovations before they start, or after they are completed.
 

Consider the value of your house after renovations are complete. Compare this with your loan balance to determine how much equity you may have available after renovations. The cost of refinancing is high, and lenders will only allow a percentage of the home's value to be borrowed. So ask yourself, is there enough equity in your home to fund the renovation work?

Secondly, interest rates need to be compared. The average personal loan interest rate is significantly higher than loans that are secured with home equity. 

How much will you save in interest by paying off the personal loan and increasing your mortgage balance? In addition to those savings, there will be closing costs associated with refinancing. Calculate which approach saves the most money.

Cash-Out Refinancing Requirements

You and your house must meet a few specific requirements before you can consider a cash-out refinance. The credit score you'll need to be considered for such loans is around 620, but the exact score you'll need will vary depending on the type of loan and the amount of money you're borrowing.

Having a certain amount of equity in your home will also be a requirement. Your lender will require a property appraisal if you are refinancing. The amount of equity in your home is determined by subtracting the loan balance from the appraised value. You typically need between 15% and 20% equity, although the minimum requirement varies by lender.

As part of your refinancing application, your debt-to-income ratio will be considered. You calculate this by combining your recurring monthly debt and dividing it by your gross monthly income. You'll typically need a debt-to-income ratio of 50% or less, although lenders will vary.

Refinancing to Remove Private Mortgage Insurance

Your loan might also be eligible for PMI refinancing, so you don't have to pay PMI anymore. Refinancing will remove the need to pay for PMI and likely get you a lower interest rate, helping you reduce your monthly expenses significantly. PMI is required for borrowers who can’t submit a down payment of 20% or more. 

Depending on the loan type, it may be possible to remove PMI without refinancing the loan. To find out the home's current market value, you need to get an appraisal. Check your loan documents to determine if PMI can be removed or if the loan needs to be refinanced.

Refinancing After Renovations: More thoughts

It is common for mortgage decisions to be influenced by various factors. Essentially, interest rates and cost are the two most important factors to consider when refinancing. Both up-front and down the road costs are covered, along with savings. Making realistic calculations can help you make better decisions about financing your home by looking at the big picture.

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