Skip links
how does home equity work

Home equity 101: what is home equity and how does it work?

Home equity 101: what is home equity and how does it work?

As a homeowner, you have probably come across the concept of home equity but are left wondering what it is and how it works. In short, home equity is a tool that can give you access to financing that helps you achieve some of your goals. As you start to understand it, you can also leverage it with the help of Alpine Credits.

Apply now
how does home equity work

What is home equity?

Home equity is a term used to describe how much of your home you own, meaning how much of the house you’ve paid for. More specifically, it’s the difference in value between your outstanding balance and the appraised value of your property.  

Since most homeowners purchase their homes with the help of a mortgage, they acquire their home in exchange for a loan from a financial institution or lender. Over time, they make regular payments towards their loan and slowly pay off their mortgage, which means they’re also slowly paying off the overall cost of their home. 

Homeowners who have been paying off their mortgage for years will have much more home equity than someone who’s only recently bought their home.

How does home equity work?

Homes can be viewed as a form of investment and can, therefore, be a financial tool. Ultimately, they allow you to access the value of your home without having to sell it. This can be great for homeowners who need financing but also need to keep their homes. It can also be an excellent option for individuals and families who can’t afford a traditional loan through conventional financial institutions.

How can home equity be used?

You can use your home equity to acquire funding through several methods, including business ventures, consolidating loans, renovating a home, and more. You can also choose from a few different home equity financing options, but the two best options are the standard home equity loan and home equity line of credit (HELOC). 

Home Equity Loan

Getting a loan means receiving a lump sum from a lender. If you qualify for the loan, you receive the entire total in one deposit and are required to repay it according to your agreement with the lender. Home equity loans operate the same as regular loans. The differences are that your home secures the loan and that the value of the loan depends on how much equity you’ve built.  

Depending on the lender, you can receive up to 80% of your home equity as a loan. Since the loan provides access to a large lump sum of funds immediately, you also start repaying the principal and interest on the next payment due date.

Home Equity Line of Credit

A HELOC lets you withdraw money as needed against a maximum amount, which is determined by your total home equity and your agreement with the lender. HELOCs are revolving lines of credit where you can repeatedly borrow and repay until the end of the agreement. 

HELOCs are split into the draw phase and the repayment phase. During the first stage, you’re allowed to borrow as much as you need. Your only obligation is to repay the interest on a monthly basis. Once you transition into the second stage, you can no longer borrow, and you can focus on repaying the line of credit.

Purposes for using home equity 

Home equity is flexible because it has high value, allowing borrowers to use it for multiple reasons simultaneously.  

  • Home renovation—some improvement projects can cost hundreds of thousands of dollars, but home equity loans offer more than enough to cover your biggest renovation goals. In the end, your home will have more value, and you will achieve your dream house.  
  • Loan consolidation—multiple loans and credit card balances can be satisfied with a home equity loan. Having just one financial obligation is easier to manage, and home equity loans have comparatively lower interest rates as well.  
  • Business investment—whether starting your new entrepreneurial venture or providing more capital for your existing business, home equity loans can provide. They don’t require business plans, you just need to own your home to be eligible for the loan.  
  • Property down payment—providing the down payment for another home becomes simpler when you use your home equity. With property values rising in Canada, paying as high as a20% down payment can be a challenge, but home equity loans allow homeowners to acquire a second property through the value in their home.
Apply now

Why should I use home equity financing? 

Home equity financing is the way to go when you need to access funds in an emergency or for a specific reason but don’t want to take on a high-interest loan or sell your house to do so. 

  • Quick access to financing—home equity loans do not take as much time to process with Alpine Credits. If you’re eligible, you can receive the loan within a few days of applying. 
  • Simple approval criteria—you only need to own at least 25% of your home to be eligible for a home equity loan. Unlike banks that determine your approval through your credit score, income, or employment, home equity loan lenders shift their focus to your home equity.  
  • Potentially large sumpersonal loans do not have a value of more than $50,000, and the amount you’re offered will vary based on your credit history. With more equity and a more valuable home, you could get a bigger loan. 
  • Comparatively lower interest rates—in addition to the sum you receive, other loans can have high interest rates depending on an applicant’s credit history. Home equity loans have fixed rates, which allow you to budget with confidence.  
  • Flexible purpose—most loans have their name because it defines their function and is subject to specific criteria or funding limits. Meanwhile, your eligibility for home equity doesn’t depend on how you intend to use the loan.  

Many banks and lending institutions may refuse applicants for traditional loans because of varying factors such as age, credit history, or income requirements, but Alpine Credits only looks at the home equity you can access. This simplifies our approval process and means we can get you approved within 24 hours for your home loan equity financing. 

How to apply for a home equity loan from Alpine Credits 

Now that you know more about home equity loans and how they can benefit you as a homeowner, consider applying for one with Alpine Credits. The process is simple and can be broken down into just a few steps. 

  1. Apply online—you can finish the application in a few minutes. You don’t need to know your credit score. All you need to provide is your home equity and some personal details.  
  2. Wait for approval—if you own at least 25% of your home, you’re eligible for a home equity loan You’ll hear back from Alpine Credits within 24 hours.  
  3. Receive funding—after getting approved, you’ll receive a direct deposit into your bank account no more than three days after your approval. You can use it as soon as you need it for your financial needs.

Frequently Asked Questions

One way you can access your home equity is by collaborating with Alpine Credits. We are an alternative lender that provides a simple and flexible financing solution to homeowners of any financial background or employment. If you own at least 25% of your home, you’re eligible for a home equity loan from Alpine Credits.

Using your home equity means borrowing a lump sum equivalent to a portion of the value of your home. Because they are usually worth more than traditional loans, they provide additional financing for some financial goals, such as home renovations or credit consolidation.  

The maximum legal amount you can borrow is 80%, and some lenders may operate below the limit. For example, Alpine Credits allows homeowners to borrow up to 75%. Your home holds a lot of value and can provide more than enough funding whether you have 75% or 80% of your home value.