Using home equity to buy another home in Canada
A popular investment choice in Canada is buying another piece of property to generate rental income or provide housing for extended family members. Homeowners have a special advantage: they may be eligible for a home equity loan to finance their second home.
Understanding Home Equity
Home equity is the value you have built into your property; the more of your mortgage you’ve paid on your primary residence, the more equity you have. You can calculate how much equity you have by subtracting the outstanding mortgage balance from the appraised value of your home.
If your home has an appraised value of $1 million and your outstanding mortgage balance is $600,000, your equity would be $400,000. Alpine Credits can lend up to 75% of the house’s equity, which would be $150,000.
Because equity can be significant, many people will take advantage of their equity and access it as a loan. The loan can be used for any purpose, like debt consolidation, home renovation, or buying another house.
How Does Buying A Second Home With Home Equity Loan Work?
A home equity loan provides you with a portion of your home’s value in the form of cash. Once you receive the funding, you can provide the down payment for the property. If you have enough equity, you can also use it towards monthly mortgage payments.
If you were buying a piece of property worth $500,000, it would require a minimum down payment of $25,000. If you can borrow up to $150,000 against your current property’s equity, you can pay for a significant portion of the second home.
Reasons For Getting Another Home
Another piece of property can help you achieve some goals or accommodate changes in life. With a second home, you can use it as any of the following options.
- Investment opportunity—buying rental property and renting it out is a common way to invest. They can earn a profit from the rental income or sell it in the future when housing values rise.
- Vacation property—owning property for vacation purposes, like a cottage or a beach house, is another popular reason to have a second home. You can keep returning to your favourite vacation spot without having to worry about accommodation.
- Family growth—rather than selling and moving to a bigger house, you can use your equity to buy another home your relatives can settle in. That way, everyone has their own space, and getting approved for a mortgage is less challenging.
Advantages Of Using Home Equity To Buy Another Home in Canada
Having another house is a good investment overall. When you purchase one with a home equity loan, you can experience several benefits.
- Potentially lower interest rates—you may be able to save on interest compared to other financing options, especially if current mortgage rates are high or if your credit score is less-than-ideal.
- Fixed interest rate—home equity solutions usually come with fixed rates, keeping your payments protected from potentially changing rates.
- More flexible eligibility criteria—lenders feel more secure when you provide an asset as collateral, increasing your chances of getting approved compared to if you weren’t.
Qualifying For A Home Equity Loan
Two common sources of home equity loans are the banks and alternative lenders. Each has its own set of criteria.
Traditional banks
Although your property acts as collateral, traditional financial institutions value creditworthiness in loan applications. Some of the requirements include a low debt service ratio, a strong credit score, and a steady income that demonstrates that you can repay the loan comfortably.
Alternative lenders
If your financial situation doesn’t match what the banks prefer, you can find home equity solutions at alternative lenders. They have a more flexible eligibility requirement, allowing people to borrow regardless of their credit standing.
They’re also an ideal choice when you’re planning to buy property like farms or vacant land because alternative lenders are less likely to ask how you’re using the loan. For many alternative home equity loan lenders, the most important factor in your application is your home equity.
Comparing home equity loans with other options
Among the many ways you can access your equity, home equity financing can be more ideal than an unsecured personal loan, a home equity line of credit (HELOC), and a traditional mortgage.
| Home equity loans | HELOCs | Traditional Mortgages | Unsecured personal loan | |
| Large loan amount | ✔️ | ✔️ | ||
| Simple eligibility criteria | ✔️ | |||
| Purpose flexibility | ✔️ | ✔️ | ✔️ | |
| Fixed interest rate | ✔️ | ✔️ |
How To Access Your Equity
Alpine Credits has been helping homeowners across Canada access their equity for over 50 years. The process takes three simple steps, and a new home can be yours.
- Apply for the home equity loan—you can finish a loan application at Alpine Credits in minutes. You’ll only need to provide your personal details and home appraisal value.
- Get approved and receive the funding—you’ll hear back about your application within a few hours of applying. If you own at least 25% equity, you’re eligible for approval, and you’ll receive the deposit within days.
- Purchase the second property—as soon as you receive the money, you can provide it as a down payment or as mortgage payments.
If you have more questions, contact a Financial Solutions Specialist. They’ll provide you with answers and a no-obligation call.
Frequently asked questions
Can I use equity to buy another house in Canada?
Home equity loans are a flexible form of financing, and you can use them for many purposes, including the down payment on investment property or a vacation home. If you own enough equity, you could borrow enough to cover the down payment for the second mortgage.
Can you use equity as a down payment in Canada?
You can use your equity to cover the entire down payment cost or to supplement what you’ve saved. Because the requirements aren’t as strict, they make a great option if you don’t qualify for a mortgage from traditional mortgage lenders.
How much can I borrow against my house in Canada?
The maximum amount of equity you can borrow against your house in Canada is 80%, but lenders may set different limits. With Alpine Credits, you can borrow up to 75% of your home equity value.
How does a home equity loan affect your credit score?
Within the process of purchasing a second piece of property, home equity loans from Alpine Credits don’t directly affect your credit score.
How long does it take to get a home equity loan?
With Alpine Credits, the process of getting a home equity loan can be less than a week if you meet the eligibility requirements.