Compare and Save With Loans Canada
Written by Bryan Daly
Best HELOC Toronto (Online) January 2021
While buying a home in Toronto isn’t the easiest thing to do, given the high cost of housing in the city, it might be the way to go considering how valuable most real estate is in the urban areas of Ontario. In fact, paying down your mortgage comes with more benefits than earning the status of a homeowner.
Click here for more information about mortgages in Toronto.
In this case, we’re talking about your home equity and how you can use it to your advantage. Not sure what home equity entails or what you can do with it? Keep reading to learn more.
Using Your Home to Secure a HELOC
Remember, your home is an asset, especially in Toronto where real estate is always in high demand.
Building Your Home Equity
Generally speaking, you can build your home equity a couple of different ways:
- Paying down your mortgage over time
- Adding extra value to your home through renovations or property maintenance
- When your neighborhood becomes a more popular place for home purchases
To learn more about borrowing using your home equity, check this out.
Securing a HELOC (Home Equity Line of Credit)
Once you have enough home equity built up, you may be able to qualify for a line of credit that’s secured against your property. Similar to a credit card, you can draw from this revolving credit line in whatever amounts you need, then pay it back through monthly balances, only paying interest on what you’ve borrowed. The length of your payment term will depend on your lender’s policies in Toronto, but can sometimes last 25-30 years, the length of an average mortgage.
Looking for a personal line of credit? Here’s how you can get the best rate.
Once you have access to this line of credit, you can cover a whole range of expenses in Toronto, including but not limited to:
- High-interest debt consolidation
- Further increasing the value of your home (renovations, additions, etc.)
- Purchasing new furniture or appliances
- Repairs and/or maintenance for your car or another vehicle
- Tuition, books, and other educational expenses
- Utilities, internet, or other necessary service costs
- Installing new heating, air-conditioning, or ventilation in your house
- Any financial emergency that comes your way
Look here if you’re interested in finding the right car loan in Toronto.
Considerations to Make Before You Apply for a HELOC in Toronto
- HELOCs usually come with a variable interest rate, meaning your interest payments will fluctuate with Canada’s prime lending rate.
- Most lenders in Toronto require a minimum of 20% equity before you can apply.
- Most lenders in Toronto will also only lend a maximum of 80% of your available equity.
- Your home will be used as collateral to secure your HELOC. If you default on too many payments, you may be subject to foreclosure and bad financial damage.
- While variable interest rates are sometimes lower than fixed ones, your rate might be higher than a traditional mortgage rate if the HELOC qualifies as your “second” mortgage.
- However, some lenders in Toronto do allow for fixed rates in certain cases.
Take a look at this infographic to learn about the cost of buying a home in Canada.
Deciding Between a HELOC and a Home Equity Loan
Once you’ve built up an adequate amount of home equity, there’s another type of financial product you can apply for in Toronto, known as a “home equity loan”, also commonly referred to as a second mortgage. It’s called a “second” mortgage because it’s technically another mortgage product that’s going to fall into second position next to your original (primary) mortgage.
Interested in applying for a home equity loan product? If so, click this link.
Although it doesn’t resemble the traditional mortgage process as much as a home equity loan, a HELOC can also qualify as a second mortgage. You can apply for either form of second mortgage through your primary lender in Toronto or through a secondary source.
- Unlike a HELOC, which is a revolving credit line with a set credit limit, a home equity loan will be transferred as a lump sum directly into your bank account.
- Like an installment loan, the repayment process involves a series of equally divided payments over a specific schedule that you and your lender will negotiate.
- Payment plans are usually shorter than the average HELOC, meaning you’ll potentially be out of debt quicker.
- While it’s common for homeowners in Toronto to choose monthly payments, some lenders in Toronto may offer higher frequency payment options (weekly, bi-weekly, etc.).
- Although the terms of your payment plan can be negotiated beforehand, a home equity loan will generally have fixed installments, meaning each payment date and amount is set and must be met in order to avoid a penalty.
- With HELOCs, on the other hand, you’ll have the option of making minimum balance payments, as well as advanced payments, like a credit card.
- Home equity loans also generally come with a fixed interest rate, which can make it slightly easier to budget.
The Option That’s Best For Your Situation
- A home equity loan might be a better solution when you have one-time expenses that need to be financed quicker.
- A HELOC might be a better option when you have ongoing expenses and you’re not sure how much you’ll need to withdraw from month to month.
Want to know how you can get a second mortgage in Toronto? Find out here.
Second Mortgage Interest Rates
Before we move on, it’s important to know that your interest rate, whether it’s fixed or variable, may be higher than a primary mortgage rate if your HELOC or home equity loan qualifies as your second mortgage. This is because your lender in Toronto is taking more of a risk by approving a client who already has one mortgage on their property.
In addition, if you apply for your HELOC or home equity loan through a secondary lender in Toronto, your rate might even be even higher, due to the fact that said lender would be compensated last if you go into default and your home is foreclosed. Keep this in mind before you apply for any home equity product, as the cost of your rate can definitely affect your financial situation.
Wondering if you can beat your lender’s interest rate? Click here to know.
Appropriate Times to Borrow From Your Home Equity
Despite your home equity being a valuable tool, borrowing from it is only a good idea under the appropriate circumstances.
Only apply for a HELOC when you
- Have a steady source of income that allows you to afford both payments
- Have expenses that are too much for your credit card and savings to handle
- Are planning to purchase necessary things, rather than consumer goods
- Are trying to improve your credit through timely payments
- Want to take advantage of potentially lower variable interest rates
Read this so you can consider the hidden costs of buying a home.
Your HELOC is Close at Hand
If you’ve built up enough home equity in Toronto, then a HELOC might be a great choice for managing your expenses. If you need some more information or help with the home equity borrowing process, always remember that Loans Canada has your back. Contact us today!