A Home Equity Loan, also known as a private mortgage is a 1st or 2nd mortgage secured by your property. To qualify, lenders analyze the details of your property and available equity, rather than your income or credit.
There are many reasons to consider a Home Equity Loan but the most common reason is when you do not qualify with a traditional mortgage lender such as a bank.
This is now a frequent occurrence as the Canadian Government along with OSFI (Office of the Superintendent of Financial Institutions) continue to tighten mortgage lending policies. The latest change being the mortgage stress test. The stress test means that borrowers who apply for a mortgage through a bank, must qualify at an interest rate 2% higher than the contract rate or the current benchmark rate. Whichever is higher is what the lender must use.
In short, the formula reduces your borrowing power by up to 20%. Many Canadians are now shocked when they apply for a larger mortgage through their bank for the purposes of upsizing or refinancing for things like debt consolidation or home renovations.
A Home Equity Loan is a product that can offer some relief. Here are some examples of why you may need one.
- Damaged credit – usually as a result of divorce, poor health, job loss, unexpected expenses, family emergencies.
- Tax debt – owing money to the Canada Revenue Agency or the city for property taxes. Traditional lenders don’t offer financing to to pay tax debts.
- Debt consolidation – would like to pay off high interest rate credit cars, auto loans, bank loans, or lines of credit.
- Purchase another home – your home is listed for sale and you require a deposit for the next purchase.
- Home renovations – major home improvements to the kitchen, bathrooms, deck, landscaping, and roof.
- Spousal buyout – require funds to pay out former spouse or common law partner.
- Medical or legal expenses – unexpected life events that require a temporary solution.
The money you receive from a Home Equity Loan can be used for anything you need. Above are just a few of the common purposes.
If you have any questions or are not sure if Home Equity Loan is the right product for you, please contact us today and will be happy to help.
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