Looking to Get Equity From Your Home in Ontario?

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We help homeowners get the lowest rates for home equity loans, home equity lines of credit, refinancing, and other mortgage products.

To get approved for a home equity loan or HELOC, click here to schedule a call with our team.

Owning a home is more than just having a place to live—it can also be a source of financial flexibility through the equity you build up over time. Whether you want to renovate your home, consolidate debt, invest in a business, or fund a major purchase, tapping into your home’s equity can provide the financial resources you need. But how exactly do you unlock this equity, and what are the best options available in Canada?

This guide will walk you through the different ways to access home equity, the process for applying, and how to make the best financial decisions to safeguard your home and financial future.

Understanding Home Equity

Home equity represents the portion of your home that you truly own—calculated as the difference between your home's current market value and the outstanding balance on your mortgage. As you pay down your mortgage and as your property value appreciates, your equity increases, which opens up borrowing opportunities for you.

For example, if your home is valued at $700,000 and you owe $300,000 on your mortgage, you have $400,000 in equity.

However, lenders don’t typically allow you to borrow against the full value of your home’s equity. Instead, they use a calculation called the loan-to-value (LTV) ratio. Most lenders offer loans or lines of credit that allow you to borrow up to 80% of your home’s value, minus any remaining mortgage balance.

Let’s break this down:

Home Value: $700,000

80% of Home Value: $560,000

Outstanding Mortgage: $300,000

Maximum Equity You Can Borrow: $560,000 - $300,000 = $260,000

This $260,000 represents the maximum additional loan amount you could borrow. However, depending on factors like your credit score, income, and the lender’s policies, this amount may vary. Some lenders may offer more flexible terms, while others might cap the amount lower, especially in riskier markets.

What is the Loan-to-Value (LTV) Ratio?

The LTV ratio is a crucial part of determining how much you can borrow. Lenders rely on this ratio to balance risk and ensure that you maintain a solid equity cushion in your property. This is beneficial for both the lender, who has security in the case of default, and for you, as it helps prevent over-leveraging.

Over-leveraging—borrowing the maximum available equity—can leave you vulnerable if your financial situation changes or if the housing market fluctuates. It’s essential to strike a balance between borrowing what you need and keeping enough equity to protect yourself in a downturn.

Why Over-Leveraging is a Risk

While it might be tempting to borrow as much as possible against your home’s equity, exercising caution is key. Over-leveraging yourself can lead to financial strain, especially if unexpected expenses arise or if your income changes. Additionally, in situations where home values drop, homeowners who have borrowed heavily might find themselves in negative equity—owing more than their home is worth.

Maintaining some equity in your home not only provides financial security but also protects you in case of job loss, economic downturns, or other unexpected changes in your financial situation.

How to Get Equity from Your Home

Now that you understand how much equity you can access, let’s explore the different ways you can tap into that equity.

1. Home Equity Loan

A home equity loan, also known as a second mortgage, allows you to borrow a lump sum of money using your home as collateral, without touching your primary mortgage. This option is often chosen when homeowners want to avoid the penalties associated with breaking their current mortgage.

Home equity loans or second mortgages are commonly offered by “B” banks or private lenders, with interest rates typically higher than those of first mortgages.

Interest rates can range from 7.99% to 13.99%, depending on the risk for lenders, especially if the loan-to-value ratio is high.

2. Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured against your home. This means you can borrow up to a set limit, repay it, and borrow again, much like a credit card. One of the major advantages of a HELOC is flexibility—you can borrow what you need when you need it, without having to take out a lump sum.

HELOCs are available from traditional “A” banks (like TD, RBC, and Scotia), as well as from “B” and even “C” lenders. Working with a mortgage broker can help you find more flexible options if you don’t meet strict bank criteria.

HELOC interest rates are typically variable and can fluctuate with the prime rate, making it important to monitor rate changes over time.

3. Refinancing Your Mortgage

Refinancing replaces your existing mortgage with a new, larger mortgage. The difference between the old mortgage balance and the new one can be accessed as cash or used to pay off other debts. Refinancing is a popular option if you want to consolidate debts, lower your interest rate, or change the terms of your loan.

Refinancing can reduce your monthly payments if you opt for a longer amortization period or a lower interest rate. It’s also a good option for those looking to simplify their finances by consolidating high-interest debt.

However, breaking your existing mortgage early may result in penalties, depending on the terms of your mortgage agreement.

4. Reverse Mortgage

A reverse mortgage is an option available to homeowners aged 55 and older. It allows you to convert your home equity into cash without having to make monthly payments. Instead, the loan is repaid when the home is sold or transferred, making it a good option for retirees who want to access their home’s value without selling it.

Reverse mortgages are primarily offered by specialized lenders.

No monthly repayments are required, allowing you to access cash while continuing to live in your home. However, the loan balance increases over time as interest is added, reducing the equity left in your home for future inheritance or sale.

How to Apply for a Home Equity Loan in Canada

When you’re ready to tap into your home equity, the application process will depend on whether you’re going through your bank or working with a mortgage broker.

Step 1: Decide Between Bank or Mortgage Broker

Bank: Applying through your bank is convenient if you already have an existing relationship, but you’ll only have access to the bank’s products. Banks often have stricter lending criteria, particularly around income and credit score.

Mortgage Broker: A mortgage broker can offer more options by connecting you with multiple lenders, including “B” and private lenders, who may have more flexible requirements. A broker can also help you find better rates and guide you through the application process, especially if you have a unique financial situation.

Step 2: Gather Necessary Documents

Whether applying through a bank or a broker, you’ll need to provide several key documents to demonstrate your financial health and the value of your home:

Mortgage Statement: Shows your outstanding balance, interest rate, and other key details about your mortgage.

Property Tax Bill: Provides proof that your property taxes are up to date.

Income Information: This could include pay stubs, tax returns, and other income verification documents. For self-employed individuals, additional documentation like business licenses or commission statements may be required.

Step 3: Get an Appraisal

Your lender will likely require an appraisal to confirm the current market value of your home. This appraisal is crucial for determining how much equity you can access and ensuring that the LTV ratio remains within acceptable limits.

Step 4: Understand the Terms

Before signing on the dotted line, make sure you understand the terms of your loan or line of credit. Key factors to consider include:

Interest Rate: Is it fixed or variable?

Loan Term: How long do you have to repay the loan?

Amortization: Will longer amortization help lower monthly payments, and does this align with your financial goals?

Penalties: Are there penalties for breaking your existing mortgage, and how do they affect your decision?

Typical Interest Rates on Home Equity Loans

Interest rates on home equity loans vary depending on whether the loan is in first or second position. Loans in first position—where the lender has the first claim in case of default—typically have lower interest rates. Second position loans, where the lender is second in line to be paid, carry higher rates due to increased risk.

First Position Loans: These typically have lower rates and more favorable terms, especially if you refinance with your existing lender.

Second Position Loans: These come with higher rates, often ranging from 7.99% to 13.99%, reflecting the lender’s risk if the housing market shifts downward.

Your credit score and income will also heavily influence the interest rates available to you. Borrowers with higher credit scores and stable incomes generally qualify for better rates, while those with lower credit scores may have to accept higher rates to secure the loan.

How to Get Equity from Your Home in Canada

Tapping into your home’s equity can be a powerful financial tool, but it’s essential to approach it thoughtfully. Whether you choose a HELOC, a second mortgage, or another option, the key is to borrow wisely and ensure that your decision aligns with your long-term financial goals.

Working with a reputable mortgage broker can help you navigate the complexities of home equity loans and ensure that you get the best rates and terms available. By understanding the different options, assessing your financial situation, and choosing the right product, you can unlock your home’s equity and use it to enhance your financial stability and flexibility.

Ultimately, the right approach will depend on your unique circumstances, but with careful planning, accessing home equity can be a smart financial move that opens doors to new opportunities while protecting the value of your greatest asset—your home.