What a home equity loan actually is
A home equity loan is a lump sum borrowed against the value of your home, usually secured as either a refinance of your existing mortgage or a second mortgage behind it. The amount you can borrow depends on your home's appraised value minus what you still owe.
Common uses
Homeowners use equity loans for renovations, debt consolidation, education costs, helping a family member with a down payment, or covering a large unexpected expense. Because the loan is secured against real estate, rates are typically lower than unsecured borrowing options.
- Home renovations and repairs
- Consolidating higher interest debt
- Helping family with a purchase
How much you can borrow
Most lenders allow borrowing up to 80 percent of your home's value when combining all mortgages against the property, though this can vary based on the lender and whether you go through a bank or private route.
Weighing the tradeoffs
Borrowing against your home increases your overall debt and monthly obligations, so it is worth being realistic about whether the purpose of the loan justifies the added cost. A conversation with a broker can help map out the numbers before committing.
Frequently asked questions
- What is the difference between a home equity loan and a HELOC?
- A home equity loan gives you a lump sum with fixed payments, while a HELOC is a revolving line of credit you can draw from and repay as needed.
- Do I need good credit to get a home equity loan?
- Banks prefer strong credit, but alternative and private lenders can work with lower credit scores as long as there is sufficient home equity.
- How long does it take to get approved for a home equity loan in Toronto?
- Bank approvals can take a few weeks, while private and alternative options can sometimes close within days.