What is a Home Equity Loan?
A Home Equity Loan offers you the ability to borrow money against the equity that you have built up in your home. It is frequently referred to as a second mortgage.
Most of the time, these loans have lower interest rates than other types of loans, which makes them a desirable choice for many homeowners.
Depending on how much equity you have, you are eligible to borrow a set amount of money. To be eligible for a home equity loan, you typically need to have at least 20% equity in your property.
Borrowing against your home’s equity requires a formal application and subsequent approval. Your lender may deposit the complete loan amount into your bank account if you’re approved.
Advantages
- You can receive a lump sum payment equal to up to 80% of your home’s equity.
- The interest rates are generally lower than credit cards, unsecured personal loans, and lines of credit.
- Home equity loans with fixed rates provide predictable monthly payments and repayment terms.
Disadvantages
- Home equity loans are not offered by all major Canadian banks.
- The interest rates are higher than conventional mortgages.
- As your house is used as collateral, you run the danger of going through a foreclosure if you face difficulties making your payments.
- There are costs associated with obtaining a home equity loan, such as appraisals or legal expenses.
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