So, what is a home equity loan as offered by a bank?
A home equity loan can be described as a large loan that’s borrowed against the equity in your home, with a reasonable interest rate, compared to a non-secured loan. There are banks and credit unions in the Toronto area that offer these lending products to the general public under certain qualifying guidelines. The home equity loan can be in either 1st, 2nd or in some cases a third position
So, what’s a second mortgage?
A second mortgage in Toronto is similar to a home equity loan and in many cases, you can borrow up to 90% of your home equity from lenders that are private individuals, mortgage investment corporations and even some credit unions amongst other lenders in the lending sphere.
Now we’ve talked, briefly, about both a home equity loan and a second mortgage, we can determine what the differences are. But let’s talk about their similarities.
So, what are their similarities?
Both a home equity loan and a second mortgage are often interchangeable with one another, they both borrow against the equity of your home and the process you go through when applying are very similar.
Now you know what the similarities are we can discuss the differences, So what are the differences?
How long does a second mortgage last in comparison to a home equity line?
A home equity loan in Canada has an added bonus as you can discuss your repayment option to suit your personal needs and often can include interest and principal payments whereas, your second mortgage can be as short as three months and as long as one year and usually involves interest only payments.
So, which one is most suited to you?
When we talk about the differences between both a home equity loan and a second mortgage it’s important to note that it almost always comes down to your personal situation and what’s best for you.
Before choosing which one you want to go with, why don’t you ask yourself some of the following questions?
Why do you need the money?
Are you looking to cover a big expense or pay off your debts? Either way, determining what you need the money for and how much money you need is crucial when picking between both.
Home equity loans offered by a bank can provide a large sum of money if you have sufficient equity in your home with a reasonable credit rating and adequate provable income. Also, most lenders prefer to lend up to 75% of the value of your home in more traditional bank settings.
When do you need the money?
A second mortgage is a much faster process and does not rely on your credit rating or income. You can even expect to have the money you need within a week, unlike a home equity loan that may take a few weeks, contingent on the bank’s volume of files and other administrative issues. Home equity loans offered by a bank can take longer to process and therefore, you’ll have to wait for the money to be in your account. So, if you need the money on an urgent basis then you may want to consider a second mortgage as an option.
So, do you urgently need the money or are you able to wait?
Overall, is a second mortgage a good idea?
Second mortgages are a good idea under the right circumstances. They Are great for anyone who has a low credit score with non-provable income or needs to pay off urgent bills.
What about a home equity loan?
A home equity loan is mostly suited to anyone who needs a large sum of money and may wish to make principal & interest payments. You get an added bonus as interest rates in Canada are significantly lower than unsecured loans. Consider all your options and weigh out all the pros and cons before jumping straight in.
Before you go any further, learn more about your options and what lending product may be suitable for you, by contacting your mortgage broker today.