Our Blog

A home equity loan and home equity line of credit (HELOC) are two great ways to borrow against the equity built up in your home—especially with housing prices rising steadily in the GTA and Barrie and interest rates near record lows. If home improvements are on your to-do list, it’s an excellent time to consider a home equity loan or HELOC . Just make sure you understand the difference, and make sure you find the best home equity rates.

What is a Home Equity Loan?

If you’ve been paying down a mortgage, you’ve been building up equity; that’s the difference between what your property is worth and what you owe on it. If the value of your home in the GTA or Barrie has increased, you probably have more equity than you thought you did.

If you need money for home improvements, to pay off unexpected debt, or to go on a vacation and you want to take advantage of your home’s value without selling it, you could consider getting either a home equity loan or HELOC. The two might sound the same but they operate very differently. That’s why it’s important to know the differences.

Types of Home Equity Loans

There are two types of home equity loans: lines of credit and term loans (closed-end). They are sometimes referred to as a second mortgage because they use your property as collateral.

The home equity loan and HELOC are based on the current value of your property minus any outstanding loans, including the new one you’re getting. Lenders will add the loans together—in this case, the first mortgage and second mortgage—to get the loan-to-value (LTV) ratio.

The maximum amount you can borrow will differ depending on whether you choose to take out a home equity loan or HELOC. The maximum you can borrow with a home equity loan is up to 85%.
Because of new tighter lending rules, the maximum you can borrow with a HELOC is 65%. Technically, you can still borrow up to 85% of the home’s appraised value, but any amount over 65% must be amortized (paid off on a fixed repayment schedule like a regular mortgage).1

Home Equity Loan

A home equity loan is often referred to as a second mortgage because it’s secured by your property and is second in line to get paid off in case there is a default. Once you’re approved for a home equity loan, the lender will send you a one-time lump-sum payment for the total loan amount. Once you receive the money, you cannot borrow any more from the home equity loan. It is also paid off over a set amount of time, with a fixed interest rate and set monthly payments.

HELOC

A HELOC works like a revolving line of credit. You can borrow up to a certain amount for the life of the loan, which is set up by the lender. During this period, you can withdraw money as needed. As you pay off the principal amount, the credit on the HELOC revolves and you can use it again. Where a home equity loan has a fixed interest rate, a HELOC has a variable interest rate.

Home Equity Loan vs. HELOC

The biggest appeal of a home equity loan and HELOC is the interest rate, which is almost always lower than rates attached to a credit card or unsecured bank loan. That’s because the property serves as collateral for the HELOC or home equity loan.

That said, each loan treats interest rates differently. A home equity loan charges interest on the total loan amount. But because it is a fixed interest rate, you know how much your monthly payments will be. Because the interest rate on a HELOC is variable , it will fluctuate. As a result, payment amounts will vary. At the same time, with a HELOC, you only pay interest on the amount you’ve taken out.

Interest rates aside, there are other differences you need to consider when deciding on which type of loan is right for you. A home equity loan is paid back like a regular mortgage is. There is an amortization period and the home equity loan needs to be paid off in this timeframe. On the other hand, a HELOC, because it is a revolving line of credit, is continually being paid down and drawn upon.

With a HELOC, the credit limit can increase as the equity in the home grows. With a home equity loan, you are given a lump sum and cannot access additional funds.

For these reasons, many see a HELOC as being much more flexible than a home equity loan. But there is no one-size-fits-all approach to loans. And the decision could come down to what you want to actually use the loan for.

Which One Is Right for You?

It really depends on what you want to use the money for.

Many Canadians opt for a home equity loan if they need money to pay for a one-time event and like the security of a fixed-rate loan. For example, if you need to pay for a wedding this month and re-shingle the roof the next month, you may want to take out a home equity loan. You know how much you need and don’t plan on borrowing again.

If you need access to money over a longer period of time, then a HELOC might be the best option . It provides the flexibility to borrow the amount you need when you need it. If you borrow small amounts at a time and can pay the principal back quickly, the variable interest rates may not negatively impact you. In this case, a HELOC can cost less than a home equity loan.

Canadalend.com, Helping First-Time Home Buyers in the GTA

Because housing prices in southern Ontario are strong and interest rates are at record lows, it’s not terribly difficult to find a lender willing to give out HELOCs or home equity loans in Barrie and the GTA . That said, the rates and conditions on the loans could vary significantly, and choosing the wrong loan could cost you thousands in unnecessary interest costs.

That’s why it’s important to talk to the independent, licensed agents at Canadalend.com. First, we’ll evaluate your financial situation and help you decide which kind of loan is best suited to your financial and lifestyle needs. Because we’re independent, we have access to hundreds of different lenders and can help you find the lender that’s right for you.

To find out what kind of loan is best for you, contact Canadalend.com today . Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1.“Borrowing on Home Equity,” Financial Consumer Agency of Canada web site; http://www.fcac-acfc.gc.ca/eng/resources/publications/mortgages/Pages/Borrowin-Emprunte-1.aspx, last accessed July 14, 2016.

The GTA remains one of the hottest residential real estate markets in the country. Sales and prices reached record levels in 2015 and the momentum has carried into 2016. While this is good for current homeowners, it can be difficult for first-time home buyers to save up enough for a down payment. Fortunately, there are a number of ways you can save your way to a down payment in Toronto and the GTA .

Toronto Real Estate Remains Strong

The GTA is one of Canada’s hottest and strongest real estate markets. In 2015, the average price of all home types sold in the GTA increased 9.8% year-over-year to $622,217. The biggest increases came from detached homes, where sales climbed 12.6% in Toronto to $1.04 million and 12.1% in the 905 area to $728,015.1

That momentum has carried into 2016 with strong numbers posted in the first half of the year. Most recently, in May, a record 12,870 homes exchanged hands, a 10.6% increase from May 2015.2

The average price of all housing types in the GTA increased 15.7% to $751,908. Once again, detached homes saw the greatest increase. The average price of a property in Toronto increased 8.9% to $782,051. In the 905 area, the average price climbed 20.1% (more than $100,000) to $734,924.

It’s great that the housing market in the GTA is one of the strongest in the country, but this also poses challenges for those first-time buyers saving for a mortgage deposit. The question is, what are the best ways to save for a mortgage?

How Much You Need to Save for a Down Payment

First things first, how much do you need to save for a down payment in the GTA ? There is no set number since it’s pegged to the value of the property. On top of that, the mortgage rules have changed a great deal over the last decade. 10 years ago, you could purchase a home with zero down and get a mortgage with a 40-year amortization period.

You can still buy a home in the GTA with a down payment of just five percent. But if your mortgage deposit is less than 20% and a minimum of five percent, you need to pay mortgage insurance. The amount of mortgage insurance you pay is based on the size of the loan and length of the mortgage; premiums run from 1.8% to 3.6% of the total cost.3

In February 2016, the federal government tightened its lending rules, raising the minimum down payment for a home with a purchase price above $500,000 and under $1.0 million. Under the new rules, a first-time home buyer in Toronto needs to put down five percent on the first $500,000 and 10% on the next $500,000.4

If you wanted to save for a down payment on a home valued at $750,000, you would need to come up with $50,000—five percent on the first $500,000 and 10% on the remaining $250,000. Before the new rule came into effect, you could have purchased the same home with a down payment of just $37,500.

The new down payment rule also does not affect those looking to buy a home listed under $500,000. For those property buyers, the five percent down payment rule is still in place.

How to Save for a Down Payment

It can take a long time to save for a down payment in one of Canada’s most expensive cities. But there are a number of day-to-day and longer-term strategies you can use to help you save more money for your down payment faster.

• Pay Off Your Credit Card: Pay off your credit card debt before saving for your down payment. This will free up money to put toward your down payment. Not only that, you may not even qualify for a mortgage if you have too much debt.
• Save 20%: Save as large of a down payment as possible. The more you save, the smaller your mortgage. This translates into saving thousands of dollars in interest and home insurance charges over the life of the mortgage.
• Calculate How Much You’ll Need: You need to know how much you need to save for your down payment before you start saving. If you want to save 20%, divide the price of the house by 100 then multiply that by 20. For example, if your dream home is $350,000 ($350,000 / 100 x 20), you’ll need to come up with $70,000.
• Make a Timeline: Whether you’re starting from scratch or already have some money set aside for your down payment, make a timeline and figure out how much you need to save annually or each month. If your goal is to save 20% for your down payment in five years, you’ll need to save $1,250 each month ($75,000 divided by 60 months).
• Prioritize: If saving for a down payment is your top priority, you’ll need to prioritize or cut back on your sending. This could include moving into a smaller apartment or living with your parents, selling your car and taking the bus, making lunch, cutting back on vacations, putting a limit on gifts, not buying a pet until after you have a home, saying goodbye to cable TV and a landline telephone, and cutting your spending in restaurants and bars in half…or even more.
• Borrow from Your RRSP: It might be a good idea to borrow money from your RRSP if it will help you reach your goal of saving 20% for your down payment. The Home Buyers’ Plan allows first-time home buyers to borrow up to $25,000 from their RRSPs to buy a home.

Canadalend.com, Helping First-Time Home Buyers in the GTA

At Canadalend.com , we understand that there is no one-size-fits-all approach to mortgages and saving for your down payment. If you’re looking to buy a home in the GTA, the independent agents at Canadalend.com can help you find ways to save for your down payment.

By looking at your unique financial and long-term lifestyle needs, your licensed Canadalend.com agent will also show you what kind of mortgage you can expect to qualify for. As the country’s leading private mortgage company , Canadalend.com has access to hundreds of mortgage lenders who specialize in residential loans.

To find out what kind of mortgage products are best for you, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “GTA Realtors Report Record Year for TREB MLS Home Sales,” trebhome.com, January 6, 2016; http://www.trebhome.com/market_news/release_market_updates/news2015/nr_market_watch_1215.htm.
2. “GTA Realtors Release Monthly Resale Housing Market Figures, trebhome.com, June 3, 2016; http://www.trebhome.com/market_news/release_market_updates/news2016/nr_market_watch_0516.htm.
3. “How Much Does CMHC Mortgage Loan Insurance Cost?” CMHC web site, last accessed July 5, 2016; http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm.
4. “Bill Morneau tightens mortgage rules on homes over $500K,” cbc.ca, December 11, 2015; http://www.cbc.ca/news/politics/morneau-home-ownership-finance-1.3360610.

Real estate in Toronto and the Greater Toronto Area continues to post solid quarterly and year-over-year gains. While many have been predicting real estate in the GTA will experience a correction or soft landing, that hasn’t happened. In fact, housing prices in the GTA continue to notch higher month after month. Thanks to low interest rates, strong demand, and solid economic growth, many see buying a home in the GTA as an excellent long-term investment.

Toronto Real Estate Remains Hot After 20 Years

Housing in the GTA continues to confound critics who have been calling for a real estate price correction for years now—especially after the U.S. housing market crashed in 2008. But that hasn’t happened.

In fact, since 2008, the real estate market in Toronto and the GTA has experienced solid, sustainable growth. It’s not as if the demand for real estate in the biggest city in Canada is a new phenomenon. The housing boom in Toronto has been going for two decades.

And that shouldn’t be a big surprise. With a population of 2.6 million, Toronto is the biggest city in the country, and the third largest in North America. The GTA has a population of more than six million. The economy is solid and the city regularly ranks amongst the most livable cities in the world.

According to one index, which looks at cost of living, food security, business environment, infrastructure, and other factors, Toronto is the top North American city to live in.1

2015 Was a Record Year for Toronto Real Estate

Because of these reasons, Toronto remains one of the best real estate markets, rewarding homeowners with strong annual price gains. In 2015, the number of homes sold in the GTA increased 9.25% year-over-year to 101,299, the first time the annual figure topped 100,000. In 2014, 92,782 homes exchanged hands.2

The average price of all home types sold in the GTA in 2015 increased 9.8% year-over-year to $622,217. The biggest increases came from detached homes. In Toronto, the price of a detached home climbed 12.6% to $1.04 million. For a detached home in the surrounding “905” area, the price increased 12.1% to $728,015.

That said, all types of properties realized solid gains in 2015. The price of a semi-detached property in Toronto rose 10.1% to $736,082. The same property in the 905 area was up 11% at $492,643.

The price of a townhouse in Toronto jumped 10 to $542,406, while in the 905 area the price increased 10.3% to $449,218. Even condominiums were a great investment, with the price appreciating five percent to $405,589 in Toronto and by the same amount in the 905 area to $317,572.

Momentum Carries into 2016 with Record Numbers in May

The momentum over the last number of years carried into 2016 with strong growth in the first five months of the year. In May, both sales and prices reached record levels in Toronto and the GTA.3

The number of home sales in May 2016 reached a record 12,870, a 10.6% increase over the 11,640 sold in May 2015. The average price of all housing types in the GTA climbed 15.7% in May to $751,908, with detached homes experiencing the strongest price appreciation. In Toronto, the average price of a property was up 8.9% at $782,051. In the 905 area, the average price increased more than $100,000 (20.1%) to $734,924.

In May, the average sale price for a detached home in the city of Toronto rose 15.2% to a record $1.28 million. In the rest of the GTA, the price of a detached home climbed 21.2% to $891,870.

The price of a semi-detached property in the city of Toronto was up 7.1% at $834,883, while in the 905 area the price of a semi-detached home increased 19% to $586,849. Townhouses continue to be an excellent investment, rising 12.9% in Toronto to $626,305 and 17.2% in the rest of the GTA to $527,503. The same goes for condominiums: prices climbed five percent in Toronto to $442,520 and 8.7% in the 905 area to $347,431.

Canadalend.com, Helping Those in the GTA Find the Best Financial Products

You need three elements to keep a housing market strong: supply, demand, and affordability. There is a lot of demand in the GTA for real estate and the supply is limited.

As for affordability, home ownership in the city of Toronto and the GTA is an excellent long-term investment. Thanks to a relatively strong regional economy in the GTA and low borrowing costs, first-time homebuyers can feel confident about both their purchase and ability to pay for their home over the life of the mortgage.

If you’re looking at purchasing your first home in Toronto or the GTA or moving up, the independent, licensed agents at Canadalend.com can help you navigate the often confusing world of mortgages.purchasing your first home in Toronto or the GTA or moving up, the independent, licensed agents at Canadalend.com can help you navigate the often confusing world of mortgages.

At Canadalend.com , we understand that there is more to getting a mortgage than just the lowest interest rate. In addition to finding a competitive interest rate, you’ll also need to consider the mortgage term (the length of time you commit to the current mortgage rate; the most common term in Canada is five years) and amortization period (how long will it take you to pay off your mortgage is full).

Your Canadalend.com agent will help you determine which type of mortgage is best for you. The experts at Canadalend.com will also help you find the mortgage term and amortization period best suited to your financial and lifestyle needs.

To get you the best financial products, our agents draw from hundreds of banks and lenders to help you secure the mortgage product best suited to you. Canada’s big banks only offer you their own in-house financial products, whether they suit your needs or not.

To find out what kind of mortgage products are best for you, contact Canadalend.com today. Or apply o nline and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “Toronto And Montreal Are The Best Cities To Live In, According To The Economist,” huffingtonpost.com, January 28, 2016; http://www.huffingtonpost.ca/2015/01/28/toronto-montreal-best-cities_n_6563024.html.
2. “GTA Realtors Report Record Year for TREB MLS Home Sales,” trebhome.com, January 6, 2016; http://www.trebhome.com/market_news/release_market_updates/news2015/nr_market_watch_1215.htm.
3. “GTA Realtors Release Monthly Resale Housing Market Figures, trebhome.com, June 3, 2016; http://www.trebhome.com/market_news/release_market_updates/news2016/nr_market_watch_0516.htm.

Should you go with a closed, open, or convertible mortgage ? There are a lot of factors you need to consider when assessing your financial and lifestyle goals and how quickly you want to pay off your mortgage .

What Is a Closed Mortgage?

A closed mortgage is a good option for those who are not on the fast track to paying off their mortgage. With a closed mortgage, you agree on a term, which can range from half a year to 10 years. The initial interest rate for a closed-term mortgage is usually lower than the rate for fully open mortgages. As a result, many homeowners choose a closed mortgage because it allows them to save on interest costs.

At the same time, a closed mortgage comes with a number of penalties. You need to pay a prepayment charge if you want to renegotiate the interest rate, prepay more than your mortgage allows, or pay off your mortgage balance before the term is up.

The fees are not inconsequential. The penalty is usually three months of interest or the interest rate differential, depending on which one is higher.

So, if you do not intend to sell the property before the term is up or refinance, or if you have no intention of prepaying any portion of the mortgage above what is allowed, a closed mortgage might make the most financial sense.

What Is an Open Mortgage?

Open mortgages are an attractive option for those who want to pay off their mortgage as fast as possible. With an open mortgage, repayment terms are much more flexible than with a closed mortgage. It can be repaid either in part or in full at any point without a penalty. Open mortgages can also be converted to any other term at anytime—all without incurring a penalty charge.

This kind of flexibility is not free. Interest rates for open mortgages tend to be higher than rates for a closed mortgage because of the prepayment flexibility.

While the interest rate will be higher, an open mortgage has a lot of short-term advantages. For example, an open mortgage is advantageous for those who have an income that varies. If you’re self-employed and earn an extra $2,500, it can be applied to the mortgage without penalty.

An open mortgage is also a great idea for those who expect their income to increase or those who want to pay down their mortgage as fast as possible. The faster you pay down your mortgage, the less interest you pay.

What Is a Convertible Mortgage?

A convertible mortgage gives you the same benefits as a closed mortgage, but it can be converted to a longer-term closed mortgage at any point without any penalty fees.

Why would you want a convertible mortgage? A convertible mortgage might be a good option if you think mortgage rates are going to decrease in the near-term. A convertible mortgage could also be a great idea if you’ve found your dream home but need more time to decide which mortgage option is right for you in the long term.

Helping Those in Toronto Find the Best Mortgage

At Canadalend.com , our independent, licensed agents will sit down with you and help determine which type of mortgage is best for you. As the country’s leading low-cost private mortgage solution provider , Canadalend.com will explain the advantages and disadvantages of an open mortgage, closed mortgage, and convertible mortgage.

Our agents draw from hundreds of banks and lenders to help you secure the mortgage products best suited to your financial and lifestyle needs.

To find out what kind of mortgage product is best for you, contact Canadalend.com today. Or apply o nline and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.