For homeowners who need cash

Turn some of your home equity into cash for the things that matter.

Equity is the part of your home you own outright. There are four common ways to borrow against it. This guide explains each in plain words so you can see which one fits what you need.

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The short versionDocumentsYour options Mistakes to avoidFirst stepsWhat we will askFAQ
The short version

How lenders look at access your home equity borrowers

1Home equity is your home value minus what you still owe. Most lenders let you borrow up to 80 percent of the home value in total, including your current mortgage.
2The four common routes are a home equity line of credit (HELOC), a cash-out refinance, a second mortgage, and, from age 55, a reverse mortgage.
3The best route depends on what you need, how much, for how long, your income, and what rate and penalty your current mortgage carries.
4Borrowing against your home is secured debt. It usually costs less than credit cards, but your home is the security, so the plan to repay matters as much as the rate.
Get ready

What lenders will ask you for

Your most recent mortgage statement
Property tax bill and proof of home insurance
Photo ID
Proof of income: pay stubs and T4s, or Notices of Assessment if self-employed
A list of the debts you pay each month
What the money is for and the amount you want
Your options

Which kind of lender fits you

Option 1

HELOC

A credit line secured by your home. You borrow and repay as needed and usually pay interest only on what you use. Rates are normally variable.

Option 2

Cash-out refinance

You replace your mortgage with a larger one and receive the difference as cash. One payment, but your whole balance moves to the new rate and term, and breaking your old mortgage may cost a penalty.

Option 3

Second mortgage

A separate loan behind your first mortgage. Your first mortgage stays untouched, but rates are higher and terms are shorter. Often private or B lender.

Option 4

Reverse mortgage (55+)

Tax-free cash with no required monthly payments. The loan is repaid when you sell, move or pass away, and interest builds up over time.

Avoid these

Common mistakes

!Choosing by the monthly payment alone instead of the total cost and the penalty to break your current mortgage.
!Borrowing the maximum when a smaller amount would do.
!Using home equity for spending with no plan to repay it.
!Refinancing mid-term without checking the prepayment penalty first.
Take action

Your first steps

1Write down how much you need and what it is for.
2Find your current mortgage balance, rate and renewal date.
3Estimate your home value, for example from a recent comparable sale.
4Gather your income documents.
5Start the intake so a broker can compare the four routes for your situation.
The intake

What your application will ask

Your online application goes one topic at a time and saves every answer and document as you go, so you can stop and come back. It never runs a credit check, and a licensed mortgage professional reviews it and follows up.

For access your home equity borrowers

  1. What do you need the money for, and about how much?
  2. What is your estimated home value and your current mortgage balance?
  3. When does your current mortgage renew, and what is its rate and lender?
  4. Do you need the money all at once or over time?
  5. What is your approximate household income and how is it earned?
  6. What monthly debt payments do you have today?
  7. Are you 55 or older, and do you plan to stay in the home?

Plus the basics everyone answers 13

  1. Your full name, email, mobile number and the best time to call.
  2. The city you live in, and whether you are a Canadian citizen, permanent resident, or other status.
  3. Are you applying alone or with someone else? If with someone, their name and how you are related.
  4. Your goal: buy, refinance, renew, take out equity, or consolidate debt?
  5. The property type (house, condo, multi-unit) and the city it is in.
  6. Will you live in it, rent it out, or both?
  7. The purchase price or estimated value, and your target closing or renewal date.
  8. Your down payment or available equity, and where it comes from (savings, RRSP/FHSA, a gift, sale of another property).
  9. Your approximate yearly household income before tax.
  10. Your monthly debt payments: car loans, credit cards, lines of credit, student loans, support payments.
  11. Your own estimate of your credit score: excellent, good, fair, poor, or not sure.
  12. In the last 7 years, any bankruptcy, consumer proposal, collections, or missed mortgage payments?
  13. May the broker contact you? (A credit check is only ever run later, with your separate written consent.)
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Answers

Questions people ask

How much equity can I access?

Most lenders allow total borrowing of up to 80 percent of your home value, including your current mortgage. A HELOC portion is capped at 65 percent. Your income and credit also set the limit.

What is the cheapest way to access home equity?

It depends on your current mortgage. A HELOC or a second mortgage can leave a low-rate first mortgage untouched, while a refinance can make sense when your mortgage is near renewal. A broker can compare them for you.

Can I use home equity for a vacation, a vehicle or a wedding?

Yes, lenders generally do not restrict how you use the money. It is secured debt, so make sure you have a realistic plan to repay it.

Will I need to qualify with my income?

Usually yes. HELOCs, refinances and most second mortgages look at your income and credit. A reverse mortgage does not require income qualification.

Are there costs to access home equity?

Common costs are an appraisal, legal fees, and possibly a prepayment penalty or lender fee. Ask for every cost in writing before you commit.

Does starting the intake affect my credit?

No. The intake is just questions. A credit check is only done later, with your separate permission.

Other situations

Not quite you? Pick another guide

Self-EmployedSalariedCommission & Variable IncomeNewcomers & Non-ResidentsJob and BusinessRenewal & RefinanceHELOCCash-Out RefinanceDebt ConsolidationHome RenovationsInvestment & Business FinancingEducation & TuitionMultiple PropertiesReverse MortgageStruggling With Payments or DebtCondo Investors in ArrearsCredit Rebuild & Private LendingNo-Income / Stated IncomePrivate MortgagesSecond MortgagesBridge FinancingHome Equity LoansCommercial MortgagesInterest-OnlySecondary SuitesSpousal BuyoutRetirement MortgagesPower of Sale Help All mortgage guides
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General information, not mortgage, legal or tax advice. Lender rules change and every application is reviewed on its own facts. Your application and documents are stored privately and go only to a licensed mortgage professional at Top Mortgages Inc; they are never sold, and no credit check is run without your separate written consent.