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Using home equity to buy another home in Canada

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 family members. Homeowners have a special advantage: they could be eligible for a home equity loan canada and the funds from the home equity loan can serve as a down payment for another house. Home equity loans can be a valuable tool, so homeowners should know how to buy a house with their existing equity. 

Mortgage advisor talking to clients

What is home equity? 

Equity is the difference between the outstanding mortgage balance and the house’s appraised value. You can even calculate yourself.

home equity loan equation from Alpine Credits

For example, if your home has an appraised value of $1 million and your outstanding mortgage is $600,000, your equity would be $400,000. Lenders usually only lend up to 75% of the house’s equity. In this case, 75% of that value would be $150,000.  

So then, you would be eligible for a loan of up to $150,000. If your property increases in value and you pay down your mortgage, you can obtain a higher loan amount

Fixed-rate home equity loans 

Traditional banks and alternative lenders are familiar sources for home equity loans. You’re expected to start repaying the loan with interest, usually at monthly intervals. Home equity loans are usually not offered with variable interest rates, but it may depend on each lender. Learn more about how home equity interest rates work in Canada.

Pros and cons of using home equity loans for buying a house 

Generally, home equity loans come with some significant benefits that aren’t exclusive to just financing a property.  

Advantages  Disadvantages 
  • Significant source of funding
     
  • Readily available financing
     
  • Quick application & approval process 
  • Higher interest rates than traditional mortgages.
     
  • Requires having equity in a property 

 

Can I use a home equity loan for a down payment? 

In general, you can buy a house with a loan based on the equity in your home. Home equity loans provide flexibility and can be used as a down payment for investment properties, vacation cottages, or additional real estate. Because the requirements to get approved for a home equity loan aren’t as strict, they make a great option if your credit score doesn’t qualify you for a mortgage from traditional mortgage lenders.  

Comparing home equity loans with other financing options 

A home equity loan isn’t the only way to obtain another house, but they are one of the more ideal options. Other common options are traditional mortgages, home equity lines of credit, and personal loans.  

  Mortgages  Personal loans  Credit lines  Home equity loans 
Fixed interest rate  check solid check solid   check solid
Variable rates  check solid check solid check solid  
Considerable sum  check solid     check solid
Simple criteria    check solid   check solid
Revolving credit      check solid  
Flexible purpose    check solid check solid check solid

Applying for a home equity loan

Once you’ve considered the types of loans and their characteristics, you can choose the one that best suits your financial situation. To apply for a home equity loan at Alpine credits, start here. 

Conclusion 

Alpine Credits has helped tens of thousands of Canadians just like you obtain loans based on their home equity for decades. Contact a member of the Financial Solutions Specialists team to discover more about how home equity loans work and how they can be used towards a down payment. The call is obligation-free.  

Frequently asked questions

Home equity loans from Alpine Credit doesn’t impact your credit score unlike a home equity line of credit.  

Regarding tax, home equity loans can allow the interest to be tax-deductible. However, that’s only if you use the home equity loan for specific purposes that qualify for deductions, such as improvements for accessibility or investments.

The speed of the application and approval process for a home equity loan can depend on different factors, like how quickly you gather your documents or who the lender is. Alpine Credits provides faster approval than traditional banks, which means you can get approved in a matter of days.  

If you are not able to keep up with your payments, contact your lender. Many Canadians are under the impression that one missed payment means a foreclosure. Lenders want to avoid foreclosure and other legal processes as much as the borrower, so they have solutions ready for those who are transparent.