For homeowners who want to use the equity they have built
There is more than one way to borrow against your home. The right one depends on what you need the money for and how you will pay it back.
Home equity is the part of your home you own outright. Several products let you borrow against it, and they work quite differently: a line of credit, a fixed loan, a second mortgage or a full refinance. Here is how they compare, what each one costs and how to choose without overborrowing.
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1A home equity line of credit (HELOC) works like a revolving credit line secured on your home. You borrow what you need, pay interest on what you use, and usually must qualify on income and credit.
2A home equity loan, often arranged as a second mortgage, gives you a lump sum at a set payment schedule. A refinance replaces your current mortgage with a larger one and may involve a penalty for breaking the old mortgage.
3How much you may borrow depends on the home value, what you owe and the lender. Lenders commonly cap the combined borrowing at a share of the home value, and the limit differs for a line of credit and a mortgage.
4Your home secures every one of these. Missed payments can put the home at risk, so borrow for a clear purpose and know in advance how the balance will be repaid. Everything is subject to lender approval.
Get ready
What lenders will ask you for
Government photo ID for every owner on title
Your latest property tax bill and proof of home insurance
Your current mortgage statement showing the balance, rate and renewal date, plus statements for any existing line of credit
Income proof: pay stubs, a letter of employment, notices of assessment or pension statements
A short note on what the money is for and how you plan to repay it
Your options
Which kind of lender fits you
Option 1
Home equity line of credit (HELOC)
Flexible and interest-only on what you use, often the lowest cost when you qualify. The rate can change and the limit can be reduced by the lender.
Option 2
Second mortgage or home equity loan
A lump sum behind your first mortgage, so your current rate stays in place. Usually a higher rate, with lender and broker fees.
Option 3
Refinance your first mortgage
One loan, one payment, sometimes a lower overall cost. Ask about the penalty to break the current mortgage before deciding.
Option 4
Private or alternative lender loan
May be an option when your income or credit does not fit bank rules. Costs more, so plan a clear exit.
Avoid these
Common mistakes
!Treating a credit line as free money. It is a debt on your home, and small interest-only payments can hide a balance that never shrinks.
!Comparing only the rate. Add lender fees, broker fees, legal and appraisal costs, and any penalty to break your first mortgage.
!Borrowing for something that will not hold value or help your finances, then carrying two payments for years.
!Not planning the exit. Decide whether you will repay from savings, a sale, a refinance or a regular payment schedule.
Take action
Your first steps
1Write down what the money is for, how much you need and how you will repay it.
2Gather your mortgage statement, property tax bill, ID and income proof.
3Find out the penalty to break your current mortgage so the true cost of a refinance is known.
4Start the intake so a broker can compare a HELOC, second mortgage, refinance and alternative options for your situation.
5Review the written costs, check the term and renewal terms, and get independent legal advice before you sign.
The intake
What your application will ask
Your online application goes one topic at a time and saves every answer and document as you go, so you can stop and come back. It never runs a credit check, and a licensed mortgage professional reviews it and follows up.
For home equity loans borrowers
What is the home worth, where is it, and what is the balance, rate and renewal date of your current mortgage?
How much do you need, what is it for, and is it a one-time amount or something you will draw on over time?
How do you earn money today, and what can you show (pay stubs, tax returns, pension statements)?
How do you plan to repay it: regular payments, savings, a sale or a refinance later?
Plus the basics everyone answers 13
Your full name, email, mobile number and the best time to call.
The city you live in, and whether you are a Canadian citizen, permanent resident, or other status.
Are you applying alone or with someone else? If with someone, their name and how you are related.
Your goal: buy, refinance, renew, take out equity, or consolidate debt?
The property type (house, condo, multi-unit) and the city it is in.
Will you live in it, rent it out, or both?
The purchase price or estimated value, and your target closing or renewal date.
Your down payment or available equity, and where it comes from (savings, RRSP/FHSA, a gift, sale of another property).
Your approximate yearly household income before tax.
Your monthly debt payments: car loans, credit cards, lines of credit, student loans, support payments.
Your own estimate of your credit score: excellent, good, fair, poor, or not sure.
In the last 7 years, any bankruptcy, consumer proposal, collections, or missed mortgage payments?
May the broker contact you? (A credit check is only ever run later, with your separate written consent.)
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Answers
Questions people ask
What is the difference between a HELOC and a home equity loan?
A HELOC is a revolving credit line you draw on as needed. A home equity loan is a lump sum with a set repayment schedule. Both are secured on your home, and both are subject to approval.
How much equity can I borrow against?
It depends on the home value, what you owe and the lender. Lenders commonly cap the combined borrowing at a percentage of the home value, and a broker can estimate a realistic range once the numbers are known.
Is a second mortgage the same as a home equity loan?
Often, yes. A second mortgage is the usual way a lump-sum home equity loan is registered, behind your first mortgage on title.
What does it cost to borrow against my equity?
Interest, plus depending on the product a lender fee, a broker fee, legal costs and an appraisal. A refinance may also include a penalty to break your current mortgage. Ask for every cost in writing.
Which option is cheapest?
It varies. A HELOC or refinance may cost less in some cases, and a second mortgage may be better when breaking your first mortgage would be expensive. A broker can compare them using your actual numbers.
Does starting the intake affect my credit?
No. It is only questions. A credit check, if needed, comes later and only with your permission.
General information, not mortgage, legal or tax advice. Lender rules change and every application is reviewed on its own facts. Your application and documents are stored privately and go only to a licensed mortgage professional at Top Mortgages Inc; they are never sold, and no credit check is run without your separate written consent.