Are your COVID-19 government benefits coming to end? We have the information you need to prepare.
Renfi Capital is a lender that specializes in home renovation loans. It is the fastest mortgage lender in Ontario. They offer loans ranging from $25,000 to $150,000, with interest only payments at the low rate of 1% per month. Renfi works with a much wider range of credit types than conventional lenders.
Their platform is entirely online, making it easy, fast and secure.
- $25,000 - $150,000 loans
- Low credit scores accepted
- Low rate of 1% a month
- Open loan
Apply in 3 minutes, fully online process
15 minute approval, 72 hour funding
256 bit, end to end encryption
Being a Canadian home buyer comes with plenty of different benefits, especially if you live in a busy city like London. Though the cost of housing can be substantial across Ontario due to the province’s popularity, the more money you invest toward your mortgage, the more home equity you will build over time.
Once you have enough equity built up in your property, most lenders will allow you to take advantage of several credit products, one of them being the HELOC. For more information about how to gain access to a HELOC in London Ontario, keep reading.
What is Home Equity?
Let’s start with a basic explanation of home equity. As mentioned, home equity is a type of asset that you can build, typically by paying down your mortgage or adding value to your home through additions and/or renovations. Home equity can also accumulate by itself when the homes in your neighborhood are subject to a real estate boom.
For more information about building home equity, click here.
Essentially, your home equity relates to how valuable your property is estimated to be on the real estate market, minus the balance remaining on your primary mortgage (if any).
For instance, if your mortgage is $350,000 and you have a $250,000 balance remaining on your primary mortgage, you’ve now built $100,000 (just under 30%) in equity ($350,000 – $250,000 = $100,000).
However, when you decide to tap into your home equity, your property will first need to be appraised by an expert to get a more exact calculation, which is a standard part of the lending procedure. Once you’ve accumulated 20 – 25% equity, most lenders will permit you to apply for a number of credit products.
How Does a HELOC Differ From a Home Equity Loan?
Although you can also choose to refinance your primary mortgage, many Canadian homebuyers will apply for either a ‘HELOC’ or a ‘home equity loan’ once their property has accumulated a sufficient amount of equity.
These two products are similar in certain respects but are quite different when it comes to their overall costs and repayment processes, so be sure to consider the descriptions below before you apply for either.
Apply For a HELOC in London
Short for ‘home equity line of credit’, this product can be found through select lenders in London and allows you to access 65% – 85% of your available equity. Similar to the way a personal line of credit or credit card functions, a HELOC is a revolving credit line of equal or lesser value to your home equity balance.
You can withdraw from this credit line whenever you need and repay your outstanding balances on a monthly basis, usually with the option to make minimum payments whenever you can’t afford full sums, which many home buyers prefer.
This option is also appealing because, like all revolving products, you would only have to pay a variable interest rate on any amounts that remain unpaid. This rate would fluctuate according to Canada’s prime rate, so it will occasionally be lower than that of the average home equity loan, potentially helping you save a bit of money over time.
So, if you only plan to use your HELOC in London as a rainy day fund, you won’t have to pay anything. While the terms and conditions of your credit line will also vary from lender to lender, some HELOCs can last 20 – 30 years.
Generally, a HELOC in London Ontario is a better option when dealing with lengthy expenses that require financing over time, as well as unexpected events, such as:
- Long home improvements (renovations, additions, etc.)
- Lease or purchase of a new vehicle
- Reduction of work hours/income or unemployment
- Consolidation of high-interest debt
- You or a family member’s education
- Recurring bills (utilities, internet, taxes, etc.)
Applying For a Home Equity Loan in London
More commonly known as a “second” mortgage, a home equity loan is closer to a personal loan than it is to a credit card and allows you to access up to 80% of your available equity. This means that, soon after you’ve been approved, your equity lender would send you a lump sum of money via direct deposit to your bank account.
You would then repay that sum over a number of years through divided installments with interest. Although many home buyers prefer to make equally sized payments at the same time every month (other frequencies are available), some lenders will permit larger or more frequent payments without charge, so your debt ends earlier.
Rather than a revolving credit line, the loan sum will be liquid cash that you can withdraw physically or use up with your debit card. Most lenders will offer you a fixed interest rate, which may be higher than some variable rates but won’t fluctuate during your loan term and will, therefore, be easier to factor into your home budget.
Once again, every lender has a different way of doing business. That said, some home equity loans can also last up to 30 years in Canada. Perhaps the biggest difference between the two products is that your regularly occurring home equity loan payments will be mandatory, while you can choose whether or not to use a HELOC.
All this makes the home equity loan a better choice when you have large but preferably singular expenses and situations to cover, such as:
- Home maintenance (repairs, decoration, etc.)
- Purchase of a less-expensive recreational vehicle (ATV, boat, etc.)
- Temporary loss of employment due to medical issues
- Big purchases (furniture, appliances, etc.)
- Vacations and unexpected travel
- Floods, fires, and other home emergencies
When is a Second Mortgage the Right Choice?
As mentioned, a home equity loan is often called a second mortgage. This is due to its resemblance to the traditional mortgaging process. However, a HELOC can also technically qualify as a second mortgage when it comes to the products that are listed on your credit report.
Like with any credit product, lenders will send information about your mortgage payments to Canada’s main credit bureaus (Equifax and TransUnion). Your report will then retain said information over the course of the mortgage (and for several years following).
Secondary Mortgage Position
So, if you’re approved for a HELOC or home equity loan while your primary mortgage is still in effect, said product will be placed in secondary mortgage position. Typically, this will lead to a higher interest rate for that product, because the lender is taking more risk by approving a home buyer that already has one mortgage on their property. That rate would only go down once you’ve fully paid off your primary mortgage and your home equity product is moved into first position.
With second mortgage products, you’ll also have the option of applying with either your original lender or another source if you’re searching for better terms and conditions. Watch out, if you already hold a primary mortgage with one lender but apply for a HELOC or home equity loan with another, the rate you pay for that product is sure to be higher. This is because, if you default on your upcoming payments, the second lender would be last in line to receive compensation following any debt collection procedures.
Essentially, applying for a HELOC or home equity loan during your primary mortgage means that you’ll wind up with two sets of recurring payments to keep up with. The more financially qualified you are to handle both payments, the more favorable the results will be when you apply, meaning more credit, lower rates, and more adjustable payment plans.
Should you use your home equity to pay off credit card debt? Find out here.
To be safe, you should only apply for a second mortgage when:
- You want to increase your credit score through timely/full payments.
- You want to add value to your home through renovations, additions, etc.
- You’ve already checked your credit report for errors, fraud, or identity theft.
- You currently have decent credit, a low amount of outstanding debt, and a household income that can support all costs involved.
It’s probably a bad idea to apply for a second mortgage when:
- You plan to buy unnecessary items (gifts, subscriptions, clothes, etc.)
- You’re already having trouble affording your primary mortgage.
- You currently have bad credit, a large amount of outstanding debt, and/or a low household income.
Trying to Find a HELOC? Try Our Network!
Loans Canada can help match you with a third-party license mortgage professional in your area who can help you determine if a HELOC is the right choice for your needs.
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.