If there is ever a time when homebuyers need to access their home equity, it’s 2024.
Rising costs across all categories have tightened the grip on household budgets. While mortgage rates have increased gradually over the last 18 months, the lag effect means that Canadians are realizing the damage more so now, than when the rates first increased. This is because with each passing month, cash flow dwindles, and deficits grow larger.
As a result, more homeowners are considering dipping into their home equity to keep them afloat until rates come back down, or until the market recovers slightly making a sale more profitable.
Reasons to get a Home Equity Loan:
While the reasons for needing a Home Equity Loan are endless, the most common reasons we’ve helped with recently are:
- Clearing up mortgage arrears
- Clearing up property tax arrears
- Clearing up personal income tax arrears
- Consolidating high-interest debt/personal loans
- Paying out existing mortgages
- Subsidizing higher living costs for the family
- Increasing cash flow due to higher mortgage payments
…. Among many other reasons. There truly is no right or wrong reason and loan sizes range from $25,000 – $500,000.
How to Get a Home Equity Loan:
Getting a Home Equity Loan can be a lot easier than applying for an institutional mortgage. While there is some overlap in requirements, Home Equity Loans through non-institutional lenders are less stringent, have a quicker turnaround, and often more flexible terms.
Steps:
- Application – A home equity loan still requires an easy mortgage application. It’s a formality really, to meet compliance for both the broker and the lender.
- Credit Check – As part of the application, and as a formality, credit checks are done for Home Equity Loans, just like traditional mortgages.
- Supporting Documents – A list of supporting documents will be provided to you based on the details of your application (variables will change depending on the applicant and the nature of income)
- Appraisal – Unfortunately, it seems that the days of not needing appraisals are behind us until further notice. With such a questionable market, lenders need a formal appraisal to ensure the Home Equity Loan is not exceeding their risk exposure (in most cases, 80% of the appraised value).
- Lawyer Meeting – With any mortgage, a lawyer (or title insurance company) has to register the Home Equity Loan against your property.
Other things to know about Home Equity Loans:
As a mortgage broker, we’ll be your main point of contact throughout the process of obtaining a Home Equity Loan. This streamlines the process and avoids unnecessary communication from many different parties. Other things you should know about Home Equity Loans are:
- Turnaround (from the application stage to funding) can take as little as 48 – 72 hours under urgent scenarios.
- Fees associated with Home Equity Loans include lender fees, brokerage fees, legal fees, and appraisal fees. Fee amounts will vary based on the size of the loan request.
- A home equity loan can come from a bank or lender, a corporation (numbered company), or an individual (private lender)
- Home Equity Loans can range from $25,000 to over $500,000 (possibly more on a case-by-case basis)
- Some home equity loans are more appropriate than others, depending on the applicants, existing first mortgage, timeline and exit strategy. We’ll be transparent with you based on our experience.
If you’re considering getting a Home Equity Loan in 2024, give us a call for guidance on the process, costs and expectations.
Important: Don’t forget to ask us about ‘exit strategies’
We look forward to speaking (905) 455-5005