Home Loans - Home Loan Refinancing

A home loan is a secured loan advanced by a financial institution and used for major purchases. The equity in the borrower’s home serves to secure the loan. Home equity loans can be secured by a second home or the borrower’s primary residence. They are offered to borrowers who owe less in their house than its market value. In some cases, the property offered as collateral can be commercial. Borrowers who are unable to pay off the loan risk losing the collateral to the bank, and the latter is sold to recoup the money.

Home Loans

Home loans are advanced to persons over a certain period and with a specified interest rate. There are different types of home loans depending on how the money will be used: home improvement loans, home purchase loans, home conversion loans, etc. Home extension loans, for example, are advanced to borrowers who want to add an extra room or otherwise expand or extend an existing house. Home improvement loans are intended for repair or renovation of a property that is already purchased. Home purchase loans, on the other hand, are used to buy a new house. A home conversion loan is another type of loan whereby the borrower has taken a loan to purchase a home but is moving to a new home. Financial institutions extend such loans to help transfer the existing balance to the new home. Thus home conversion loans are used to obtain funds for the new home and pay the previous loan.

There are other types of home loans to look into, including home construction loans, bridge loans, and land purchase loans. Borrowers who take a land purchase loan can use the money to buy land for investment and construction purposes. Home construction loans are intended for borrowers who seek to construct a new home. Finally, bridge loans are a type of financing used by borrowers who plan to sell a property and finance a new home. Bridge loans are typically a short-term type of financing to help borrowers during the period when they are buying a home and selling their previous home.

Home Equity Loans

Borrowers who take a home equity loan offer their home equity to secure the loan. This type of loan serves to finance major purchases and expenses, for example, hospitalization and medical bills, home improvement projects and home repairs, big-ticket items, and college education. The loan reduces the equity by creating a lien against the property offered as collateral. There are two types of home equity loans – home equity line of credit and home equity term, offered with a fixed term.

Savvy homeowners benefit from taking a home equity loan. These loans are usually offered with an attractive interest rate, which is lower than that of other loans and credit cards. At the same time, there are certain costs associated with home equity loans. Interest charges are the largest cost, and they are calculated differently for HELOCs and home equity loans. Home equity lines of credit go with variable interest rates and home equity loans are offered with a fixed interest rate. The APR on home equity loans may include the cost of initiating the loan. Other costs associated with home equity loans include early pay-off fees, arrangement and appraisal fees, and closing fees. Borrowers may have to pay originator fees, stamp duties, and title fees as well.

Canadian borrowers can apply for a home equity loan from various charter banks, credit unions, and the big banks in Canada. The Royal Bank of Canada is one bank that offers RBC home equity loans for home improvement projects and unexpected expenses. Borrowers who take a home equity loan enjoy attractive interest rates compared to other types of financing. Clients of the Bank of Montreal can opt for a BMO home equity loan and use the funds for home improvement or renovation of a vacation home, large purchases, and more. Borrowers who choose this option use their home as collateral. The home equity loans offered by BMO go with flexible repayment schedules, long repayment periods, and a fixed interest rate. TD Bank also offers TD home equity loans to its customers, featured with fixed monthly payments and a fixed interest rate. The bank offers payment protection insurance, which is intended to protect borrowers in the event of accidental death, disability, or involuntary job loss. Borrowers who become disabled or find themselves out of work are allowed to cancel their monthly minimum payments up to a certain amount. Regarding disability benefits and involuntary job loss, borrowers are allowed to cancel payments for a period of up to 6 months. In the event of accidental death, the loan’s balance can be cancelled up to a certain amount. Finally, clients of the Bank of Nova Scotia can opt for a combination of Scotiabank financial solutions and borrow against their home equity.

Generally, borrowers who take a home equity loan enjoy the fact that it is an easy source of cash. The interest rate is a bit higher than that of mortgage loans, but it is lower than on consumer loans and credit cards. Canadian borrowers who opt for a home equity loan make a single payment, and there may be some tax benefits. There are other advantages of home equity loans, one being the relatively large amount of money banks offer. In addition, borrowers with poor credit find it easier to qualify if they are homeowners.

Besides other uses, persons who take a home equity loan can use the funds to buy a second home or they can consolidate high-interest loans. There are some pitfalls associated with home equity loans, however, and one is that borrowers risk losing the asset pledged if they fail to keep up with the repayment schedule. Another pitfall of this type of loans is that many scammers use clever ways to cheat borrowers out of their homes. It is important to ensure the lender in question is a reputable loan provider. If the lender refuses to put things in writing or there is something else that is not right, e.g. aggressive sales pitch, it pays to check whether the deal is legitimate. To find good deals, borrowers may want to try different sources, including credit unions and brokers. Checking advertisements and comparison websites is another way to find Canadian home equity loans.

HELOC - Home Equity Line of Credit

A home equity line of credit is a mortgage type of loan, which is typically in a subordinate position. HELOCs are intended for borrowers who want to obtain multiple advances up to a certain amount. The latter is equal to a percentage of the home equity, and borrowers can take advances at their discretion. They are allowed to draw on their home equity line of credit at a time of their choosing.

The interest rate charged on HELOCs is usually based on the prime rate. Once there is an outstanding balance, borrowers can choose a payment schedule that fits their budget. The only requirement is that they make the minimum interest payment every month. Regarding terms, home equity lines of credit are offered with terms between 5 and 20 years or more. Once the term is over, the balance should be paid off in full.

Canadian borrowers who are unsure whether a home equity loan is right for them should consider the advantages. The fact that HELOCs are offered with a variable rate of interest means that when the prime rate changes (i.e. economic conditions change), borrowers could be looking at a considerably lower rate of interest. This could save borrowers a substantial amount of money.

Many borrowers are attracted to home equity lines of credit because of their flexibility. Payments toward the principal may be of any amount as long as the monthly interest is paid. Once the borrower pays a portion of the initial loan, he can borrow the difference again. This flexibility makes it possible to improve one’s day-to-day cash flow and finance big-ticket items.

While there are many benefits, is a HELOC always the best solution? When it comes to major purchases, borrowers can choose from taking out a second mortgage or a home equity line of credit. Borrowers who expect to have 1 or 2 large expenses in the near future usually opt for a fixed-rate second mortgage. Those who will have periodic expenses, for example, room and board and college tuition, may want to consider a home equity line of credit. It is also a better choice for borrowers who want to have extra cash available for emergencies.

Home Equity Lines of Credit from Canadian Institutions

A variety of financial institutions in Canada offer home equity lines of credit to borrowers in Quebec, clients in Manitoba, customers in BC, borrowers in Nova Scotia, and in the other provinces and territories. CIBC is one bank that offers a HELOC - home equity line of credit to its clients in Ottawa, customers in Halifax, borrowers in Calgary, and elsewhere. Clients who apply for a CIBC home equity line of credit can use the money to buy a residential property, finance an investment project, make major purchases, or for home repairs and renovations. Another bank that offers home equity credit lines is TD Bank. The TD home equity line of credit is a good solution for those who want to use their home equity for college education, debt consolidation, home improvements and repairs, and more. The line of credit is featured with a low variable interest rate, which is tied to the prime rate. It is offered with monthly payments, prepayment option, and low monthly payments that can be as low as interest only. The available credit increases when the balance decreases. As an alternative to the standard line of credit offered by the bank, borrowers can take a HELOC with cash rebates on qualifying green purchases.

RBC Royal Bank offers home equity lines of credit to clients who plan to make extensive renovations. RBC HELOCs are offered to existing homeowners and combine clients’ mortgages and lines of credit in one plan. The funds can go toward college education, a new car, home renovations, or going on vacation. Borrowers can take a RBC home equity line of credit to consolidate existing debts and are offered a lower interest rate. The limit on the credit line increases while paying down the mortgage balance. Thus, borrowers have access to additional credit for emergency situations and big-ticket items whenever they need it. Borrowers can access funds at any RBC branch, through online banking, or by writing a check. Clients of the bank are free to select their repayment schedule from a variety of options, including accelerated weekly payments. In addition, borrowers can choose an amortization period that fits their budget, and this will be the length of time to pay off the mortgage loan. Finally, clients of the Bank of Montreal can look into the BMO home equity line of credit the bank offers. Borrowers who choose this option use their home’s equity to gain ongoing access to funds. The home equity line of credit featured by BMO is a good solution for Canadian borrowers who plan on making extensive renovations or big purchases. Clients of the bank apply only once and are offered credit up to their available limit. HELOCs are featured with a variable interest rate, and borrowers can use line of credit checks to access funds. Clients who have BMO accounts can access their credit lines through online and telephone banking as well as through ATMs. In some cases, borrowers are allowed to make interest-only payments. Borrowers who take a BMO HELOC can buy optional disability plus job loss coverage. They are offered creditor life insurance as well.

Home Loan Refinancing

Home loan refinancing allows Canadian borrowers to modify the terms of their home loan as to suit better opportunities or changed needs. Persons who decide to refinance use all or a portion of the funds to pay off an existing loan. Some borrowers choose to refinance with the same loan provider while others move to another lender. Those who refinance with a different lender have the existing loan taken care of by the new loan provider.

Borrowers in Canada refinance for a number of reasons, including debt consolidation to pay off multiple debts cheaper and quicker. Borrowers also refinance to renovate their home or to raise cash for large purchases. Another reason to refinance is to obtain lower home loan rates, even if this means to give up some extra loan features. Persons who are paying high-interest loans find the idea of home loan refinancing especially appealing. They can apply for a low-start, rising-rate loan to save money on interest charges. Borrowers who refinance have the option to switch from a fixed to a variable rate when the interest rate goes down, thus saving even more.

A major advantage of home loan refinancing is the fact that it may shorten the amortization period. Borrowers who obtain substantially lower home loan rates may go for a shorter term by making a slightly larger monthly payment. Before doing this, it pays to figure out whether the extra principal amount can be used to invest in something with a better rate of return.

Are there any downsides? There is a group of people – serial refinancers – who take out a new mortgage loan every time the interest rate goes down a half or a quarter point. This is not recommended because every time one chooses to refinance, more money is added to the principal amount.

Refinancing Options and Cost

Those who are looking into home loan refinancing can choose from different options. The most common type of mortgage loans to consider are reverse mortgage, adjustable-rate mortgage, option ARM mortgage, and interest only mortgage. Regardless of the type, there are certain costs associated with home loan refinancing. Some borrowers may be able to get a no-cost refinance loan from a loan provider, but financial institutions operate to make money. Lenders that do not charge upfront costs compensate for this by offering higher-than-market interest rates or roll all fees into the loan. There is a long list of fees borrowers may be required to pay, including fees for document preparation, inspection, administration, and processing. In addition to these, borrowers may have to pay notary fees, escrow and title policy fees, and other fees. Delivery and courier and the fee for obtaining a credit report add up to the cost. It is important to note that some lenders in Canada charge ‘garbage fees’, meaning that these can be negotiated by the borrower. Such fees are application, processing, administration, and document preparation fees. The lender may be willing to wave them if you ask.

To top these, some lenders include YSP or ‘paid out of closing’ in the closing statement. This money is paid to the mortgage broker for bringing a new client. Lenders that do not pay YSP to mortgage brokers usually offer lower interest rates. In addition, clients pay less in points so it pays to ask upfront.



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