In Canada, home equity loans allow you to borrow up to 85% of your home’s market value, minus the balance of your primary mortgage.
Home equity loans are also known as second mortgages and is taken out on a home with an existing mortgage. The house itself is collateral for both mortgages, meaning failure to make payments on both mortgages can result in the loss of the property.
Home equity loans are useful when a homeowner needs a lump sum of cash. Home equity loans are recommended for projects that may increase the value of your property, such as renovations, but may also be used for debt consolidation, or paying for post-secondary education.
After you apply for a home equity loan and get approved, you’ll be given a lump sum with a fixed interest rate over a set term. Home equity loans have a low interest rate compared to personal loans and credit cards, but a higher interest rate compared to the primary mortgage. To offset the risk of not being repaid in full if you default on your loan, second mortgage providers charge higher interest rates.
Fixed-rate home equity loans allow for a predictable interest rate and repayment schedule every month, to allow you to predictably budget for payments, reducing the risk of foreclosure.
However, some banks in Canada do not offer home equity loans. Juno Mortgage can help you find a home equity loan which will fit your needs, and help you find a lender which offers home equity loans.
