Home equity loans are loans that require collateral, which is the equity in one’s home. These loans can help borrowers cover major expenses, including medical bills and hospitalization, home renovation, and college education. To obtain a home equity loan, however, the applicant should have reasonable combined loan-to-value rations and loan-to-value ratio, along with excellent or good credit.
This type of loan is also called second mortgage because similar to traditional mortgages, it requires offering collateral. At the same time, both lines of credit and home equity loans are offered over a shorter term compared to first mortgages. Mortgages are usually paid off over a term of thirty years while lines of credit and equity loans often come with a repayment period of fifteen years. The term can be as long as thirty years and as short as five, depending on the lender and the borrower’s circumstances. In addition, while lines of credit are offered with an adjustable rate of interest, home equity loans often come with a fixed rate.
In Canada, many financial institutions offer home equity loans to their clients. The Bank of Montreal, for instance, offers home equity loans to borrowers who seek financing for larger borrowing needs. Applicants can borrow up to 80 percent of their home’s current value by pledging their home as collateral. The minimum amount offered in the form of home equity loan is $10,000, featured with a fixed rate of interest. Repayment can be done by preauthorized debit over a term of up to 25 years. No penalty applies for making partial of full prepayment, but some restrictions may apply. Clients who apply for a home equity loan can buy creditor life and disability insurance, which is optional. Another bank to check with is RBC Royal Bank. Clients of the bank can borrow against their home’s equity and use the money to finance their needs. The loan can go toward college tuition, debt consolidation, home repairs, and more. A home equity loan allows borrowers to commit to their children’s education, make important purchases, or make substantial investments. Clients can borrow up to 85 percent of their home’s appraised value by buying insurance and up to 80 percent if they prefer not to purchase it. If the current value of the home is $160,000, for example, 80 percent would be $128,000. Subtracting the mortgage’s balance, let’s say $52,000, the applicant can borrow up to $76,000. All other liens should be subtracted as well. Applying for a home equity loan with RBC is a good option, especially for clients who have existing mortgages with the bank. The additional funds are added to the mortgage based on the property’s appraised value.
When a home equity loan is extended, fees may apply, including originator fees, appraisal fees, title fees, and early pay-off fees. In addition, the borrower may have to pay stamp duties, closing fees, and arrangement fees. While sometimes waived, valuation and surveyor and conveyor fees apply in some cases. These costs can be minimized by finding a licensed surveyor to inspect the home to be purchased. With home equity loans and secondary mortgages, the title charges are fees to renew the title information. In most cases, fees of some sort apply, and it is important to read the agreement before you sign.