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Considering buying a second home in Canada but don’t have liquid cash available for a down payment? Then consider tapping into your current home’s equity. If you’re already a homeowner, you may have enough equity in your home to use to buy another property. Let’s look a bit further into using home equity to buy another home in Canada.

Can You Use Your Home Equity To Buy Another Home in Canada?

If you have a certain amount of equity built up in your home, you can use some of it to put towards the purchase of a second home. In Canada, you can borrow up to 80% of your home’s appraised value, less the remaining balance on your first mortgage. The exact amount you can borrow from your home’s equity depends on the lender and loan product you choose. 

You can then use that money to cover some of the cost of a second home purchase. 

Ways To Use Your Home Equity To Buy Another Home In Canada

There are a few different ways to access your home equity to buy a second home, including the following:

Home Equity Loans 

Also referred to as a “second mortgage“, a home equity loan is a type of loan that allows you to borrow up to 80% of the current market value of your home, less the outstanding mortgage balance. Like a traditional loan, you’ll be given a lump sum of money. Then, you’ll repay the loan in installment payments over a specific term with interest. 

These loans are secured against your home, meaning, if you’re unable to repay the loan, the lender can seize your home. So be sure you can afford the payments before you apply. 

Home Equity Lines Of Credit (HELOCs)

A HELOC is a type of revolving credit you can use to borrow money against your home’s equity. Once you repay what you’ve withdrawn, you can borrow over and over again up to a maximum credit limit. With a HELOC, you can borrow up to 65% of your home’s appraised value. 

These loans can be advantageous as you don’t have to repay the principal until the draw period is over (around 5 to 25 years). Till then you simply need to make the minimum payments. 

How Can You Tap Into Your Home Equity? 

While you can apply for a home equity loan with a bank, you can also access your equity through alternative lenders like Alpine Credits. These lenders can be an optimal choice for those who have bad credit, as they simply approve you based on your equity, not your credit or income.

If you’re looking to tap into your home equity, consider Alpine Credits. 

Can You Use A Personal Loan To Buy Another House?

Personal loans are financial products that provide a lump sum of cash to borrowers and are repaid over a specific loan term via installment payments. Most personal loan amounts range from $500 to $35,000, and sometimes more depending on the lender. 

Loan terms typically range between 6 and 60 months. The interest rate you’re charged depends on your financial strength, debt, and credit scores. So be sure to check your credit score before applying. 

Personal loans offer flexibility when it comes to how funds may be used. As such, you could use money from a personal loan to put towards the purchase of another home. You’ll likely pay a higher interest rate compared to a home equity loan or HELOC, but you also won’t be at risk of losing your home if you default on the loan, as personal loans are typically unsecured. 

How To Use Your Home Equity To Buy Another Home In Canada

To use the equity in your home to purchase another property in Canada, follow these steps:

Step 1. Calculate Your Home Equity

To find out how much equity you have in your home, subtract your outstanding mortgage balance from your home’s current market value. For instance, if you still have $400,000 left on your mortgage and your home is currently valued at $900,000, that means you have $500,000 in equity ($900,000 – $400,000). 

Step 2. Have Your Home Appraised

Hire a professional appraiser to accurately estimate the value of your home. This value will help you determine the most you can borrow against the equity in your home.

Step 3. Apply To Access Your Home’s Equity

Decide whether you want to take out a HELOC or home equity loan. Then, apply for the loan with the lender of your choice. As previously mentioned, you can apply with most major banks and credit unions. However, if you have bad credit, you can apply with alternative lenders like Alpine Credits

Before applying, consider doing some online comparison shopping to find lenders in Canada that offer these loans. You can use an online loan aggregator to compare lenders and their products side-by-side to see where you can get the best deal.

Step 4. Access The Funds

Once you’re approved for your loan, you can tap into the equity in your home and use the funds to buy another property. However, do note, that some lenders may have restrictions on using borrowed funds as a down payment. So be sure to understand the conditions before tapping into your home equity. 

Step 5. Make Payments

Once you receive the funds from your loan, you’ll need to start making payments to repay the funds. In the meantime, you’ll continue making payments on your first mortgage. Consider creating a workable budget to ensure you can keep up with additional loan payments.

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Benefits Of Using Your Home Equity To Buy Another Home In Canada

Using your home’s equity to buy another property comes with a few perks, including the following:

Equity Appreciation 

Over time, real estate appreciates in value, even with the odd dip here and there. And every mortgage payment you make adds to your home’s equity. At some point, you may have enough equity built up in your second home to buy a third property. 

Leveraging your home’s equity to invest in real estate means you’ll be adding more valuable assets to your portfolio that generate value over time and help you build sustainable wealth. 

Rental Property

While you can use your home’s equity to buy a vacation home for yourself to use, you can also purchase an investment property. Renting out your second property can generate monthly income that will cover the home’s mortgage and carrying costs. Meanwhile, the second property will appreciate in value over time, much like your primary residence.

Alternatively, you may choose to purchase a second property that you can use both as a recreational home for yourself and to rent out during times of the year when you’re not using it. The rent you charge for short-term rentals can help cover the costs of the mortgage and operational expenses.

Final Thoughts On Using Your Home Equity To Buy Another Home In Canada

Homeownership comes with a slew of perks, including having access to equity that you can leverage to buy additional properties. With either a home equity loan or HELOC, you can tap into your home’s equity and use the money to put towards a second home purchase. And by continuing to accumulate equity in real estate, you can build a healthy investment portfolio.  

FAQs On Using Your Home Equity To Buy Another Home in Canada

Can I use money from a home equity loan as a down payment on a second property?

If you have sufficient equity in your home, you may be able to use the funds from a home equity loan as a down payment to buy another property. However, depending on the mortgage lender you’re buying a second property with, you may need to pass certain requirements before using the loan as a down payment.  In some cases, you may even have enough equity to buy a second home in full without the need for a mortgage.

How much money can I get when I take out a home equity loan?

Generally speaking, the most you can borrow is 85% of your home equity. Keep in mind, however, that there are closing costs involved which can cost thousands of dollars, so you won’t actually get the entire 85% of equity.

Are there any risks to using a home equity loan to purchase a second home?

Since a home equity loan is collateralized by your home, you risk losing this major asset if you default on your payments. That means your lender could repossess the home and sell it to recoup their losses. Only apply for a home equity loan if you’re certain you can afford the extra payments.

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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