Borrowing against home equity
The Financial Consumer Agency of Canada (FCAC) has expectations for federally regulated financial institutions. FCAC expects them to help you if you're struggling to pay your mortgage due to exceptional circumstances.
Learn more about paying your mortgage when experiencing financial difficulties.
What is home equity
Home equity is the difference between the value of your home and how much you owe on your mortgage.
For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.
Your home equity goes up in two ways:
- as you pay down your mortgage
- if the value of your home increases
Be aware that you could lose your home if you’re unable to repay a home equity loan.
How borrowing on home equity works
You may be able to borrow money secured against your home equity. Typically, interest rates on loans secured against home equity can be much lower than other types of loans.
Not all financial institutions offer home equity financing options. Ask your financial institution which financing options they offer.
You must go through an approval process before you can borrow against your home equity. If you’re approved, your lender may deposit the full amount you borrow in your bank account at once.
Find out more about getting approved for a mortgage.
Refinancing your home
You can borrow up to 80% of the appraised value of your home.
From that amount, you must deduct the following:
- the balance on your mortgage
- your total HELOC amount, if you have one
- any other loans secured against your home
Your lender may agree to refinance your home with the following options:
- a second mortgage
- a HELOC
- a loan or line of credit secured with your home
Interest rates and fees if you refinance your home
The interest rate on the refinanced part of your mortgage may be different from the interest rate on your original mortgage. You may also have to pay a new mortgage loan insurance premium.
You may have to pay administrative fees which include:
- appraisal fees
- title search
- title insurance
- legal fees
Your lender may have to change the terms of your original mortgage agreement.
Getting a second mortgage
A second mortgage is a second loan that you take on your home. You can borrow up to 80% of the appraised value of your home, minus the balance on your first mortgage.
The loan is secured against your home equity. While you pay off your second mortgage, you also need continue to pay off your first mortgage.
If you can’t make your payments and your loan goes into default, you may lose your home. If that’s the case, your home will be sold to pay off both your first and second mortgages. Your first mortgage lender would be paid first.
Interest rates and fees on second mortgages
Interest rates on second mortgages are usually higher than on first mortgages because they are riskier for lenders.
You may have to pay administrative fees such as:
- appraisal fees
- title search
- title insurance
- legal fees
Getting a home equity line of credit (HELOC)
A HELOC works much like a regular line of credit. You can borrow money whenever you want, up to the credit limit. You can take out money from a HELOC when you need. You pay it back and borrow again. This line of credit is secured against your home.
Interest rates and fees on a HELOC
Interest rates on a HELOC are variable. They will change as market interest rates go up or down.
You may have to pay administrative fees such as:
- appraisal fees
- title search
- title insurance
- legal fees
Learn more about getting a HELOC.
Getting a reverse mortgage
A reverse mortgage allows you to borrow up to 55% of the value of your home. You must be a homeowner and at least 55 years old to qualify for a reverse mortgage.
Interest rates and fees on second mortgages
Interest rates on a reverse mortgage are usually higher than on a regular mortgage. They may by fixed or variable.
You may have to pay administrative fees such as:
- an appraisal fees
- title search
- title insurance
- legal fees
Learn more about reverse mortgages.
Borrowing on amounts you prepaid
You may be able to re-borrow money that you prepaid. If you've made lump-sum payments on your mortgage, your lender may allow you to re-borrow that money. You can borrow the total amount of all the prepayments you made. Any money you re-borrow will be added to the total of your mortgage.
Interest rates and fees if you borrow on amounts you prepaid
You pay either a blended interest rate or the same interest rate as your mortgage on the amount you borrow. A blended interest rate combines your current interest and the rate currently available for a new term.
Fees vary between lenders. Make sure to ask your lender what fees you have to pay.
You may not have to make any changes to your mortgage term.
Comparing your options
Decide which type of loan best suits your needs. Compare the different features of each option.
| Credit limit | Interest rates | Access to money | Fees | |
|---|---|---|---|---|
| Refinance your home | 80% of your home’s appraised value, minus the balance of your existing mortgage | Fixed or variable. May result in a change to the interest rate on your mortgage or a different interest rate for the refinanced portion |
One lump sum deposited to your bank account |
|
| Second mortgage | 80% of your home’s appraised value, minus the balance of your mortgage |
Fixed or variable. Generally higher than on the first mortgage |
One lump sum deposited to your bank account |
|
| Home equity line of credit (HELOC) | 65% to 80% of your home’s appraised value | Variable. Will change as market interest rates go up or down | As needed, using regular banking methods |
|
| Reverse Mortgage |
55% of your home’s appraised value, minus the balance of your mortgage |
Fixed or variable. Generally higher than a mortgage | One lump sum deposited to your bank account or in instalments |
|
| Borrow prepaid amounts |
Total of amounts prepaid |
Blended or same as your mortgage |
One lump sum deposited to your bank account |
None |
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