What You Need to Know About Home Equity Loans. So, you are considering renovating your home. Or, maybe you want to be able to send your child to college or raise capital for your business.
Contrary to popular belief, you don’t need to get involved with high-interest credit cards or personal loans to achieve these things. As a Canadian homeowner, a home equity loan may be the ideal solution.
Home equity loans are attractive because they’re fast, have relatively low-interest rates, and can be used for anything you want. Best of all they are generally approved based on your equity, not your credit or income.
Here, you’ll learn how to make the most of them so they benefit you even if you have bad credit or a low income.
What Is a Home Equity Loan?
While this may sound like a great solution, it’s important to fully understand any debt you take on and home equity loans are no exception.
Put simply, home equity is the difference between the market value of a home and the remaining balance on the mortgage. Your home’s equity changes over time due to two factors:
- Making repayments on your mortgage, reducing the remaining balance
- The increasing value of your house over time
So for example, if your home is assessed to be worth $300,000 and you have $200,000 left to pay on your mortgage, your home equity is $100,000.
So How Can I Use My Home Equity?
Now that we know what home equity is, how does it work in a home equity loan?
First, you need to find a lender, which Mortgage Brokers Network can help with. You’ll discuss the terms of the loan including your repayment plan and once approved, the lender deposits the total amount in your bank account. In Canada, you can borrow up to 80% of your home’s market value, less your remaining mortgage balance.
You’ll be expected to repay the loan in equal monthly parts over a fixed term. As any home equity loan is secured by your house, it’s important to make sure you can afford the repayments before you sign anything.
Missing payments will result in the forced sale of your home to settle the debt. We’ll discuss strategies for avoiding this later.
With the cash in the bank and an affordable repayment plan, you can use the money for whatever you like!
Benefits of a Home Equity Loan
So why is this type of loan so good?
Lower Interest Rates
Interest rates on home equity loans can be either fixed or variable, depending on the lender, but they’re almost always guaranteed to be lower than the interest rates on other loans or credit cards because you’re using your home as collateral.
You Can Use It for Anything
It really doesn’t matter why you need a home equity loan. You can use the money for any number of reasons, including:
- Home improvements
- Paying off high-interest debt
- Clearing up tax arrears
- Raise business capital
- College fees
Bad Credit Home Equity Loans
Because a home equity loan is secured by your house, lenders tend not to care as much if you have a poor credit history or even a low income. Lenders, especially those associated with MBN, focus more on your equity and will often overlook past bankruptcy, job loss, and poor credit scores.
This makes home equity loans suitable for those who may find it hard to prove their income, such as self-employed people, and people whose actual earnings may differ from the earnings they’ve declared for tax.
Your chances of being approved are a lot higher for a home equity loan than for credit cards or personal loans thanks to the security offered by your home and the amount of bad credit home equity loans available through MBN.
Home equity loans are a great choice if you need the money quickly, such as for emergency medical bills. Lenders deposit the lump sum of your loan straight into your bank account so it’s easy to access and MBN could get you approved for a loan in as little as 24 hours.
A Good Strategy for Home Equity Loans
We’ve mentioned that all debt needs serious thought before you take it on. But a debt secured by the roof over your head needs to be thought out even more thoroughly.
Plan Everything Out
Before you start applying for loans left, right and center, ask yourself these key questions:
- How much money do you need to borrow?
- Is a home equity loan the right product for your situation?
- Once approved, how do you plan on using the money?
You don’t want to borrow more than you need and end up struggling to make the repayments. Plan out in detail what the money will be spent on and make sure a home equity loan really is the best way to raise the cash.
Can You Afford It?
Repayment plans are often negotiable so when talking to lenders, have an idea of how you want to repay your loan and how you are able to repay.
Make sure you understand all the terms and conditions before you sign anything, as there may be admin fees you weren’t aware of, such as appraisal fees, title insurance, and legal fees.
Finally, read all the paperwork carefully and make sure that the loan you’re agreeing to is the loan you want.
At MBN, we have over 30 years of experience helping Canadians borrow against their home equity and achieve their goals. With over 50 lenders waiting to approve you, we can talk you through your options and find the best deal for you.
If you have more questions, about what you need to know about home equity loans, don’t hesitate to contact us. Call us toll-free at 1-877-383-1577 for a free consultation or apply now and have an approval in as little as 24hours!