Looking for a home equity loan or personal loan.

In the recent couple of years, the market of second mortgage and bad credit mortgage in Toronto has regained strength. Refinance mortgages too are making a comeback in Toronto. If you are looking for a home equity loan (second mortgage) or personal loan for short term expenses, such as home improvements, debt consolidation, vacations, etc; you wouldn’t be left disappointed. One of the key features of this type of loan is that it allows you to borrow money based on the equity in your home. (Equity refers to the market value of your home minus the outstanding mortgage balance).

Before you go ahead and check out the best second mortgage lenders in Toronto, there are a couple of things you ought to know about home equity loans. Basically, there are two types of home equity loans – Fixed-rate loans and Home-Equity Line of Credit (HELOC). In a fixed-rate loan, you get a lump sum of money that has to be repaid within a fixed time-period. The rate of interest remains constant throughout the loan term. On the other hand, Home-Equity Line Of Credit (HELOC) works like credit cards and has a fixed term. The lender approves you for a certain spending limit, which means you can withdraw money until you reach the limit. Like credit cards, the rate of interest in this type of loan is variable. Therefore, your monthly installments may depend on the total amount you borrow in that particular month & also on the going interest rate.

Qualifying for any type of home equity loan – Fixed-rate loans and Home-Equity Line of Credit (HELOC) is not as simple as you might think. As mentioned above, equity is your home’s share that you own verses the amount you owe to the lender. So, if the appraised value of your house is $250,000 & you owe $200,000 on the mortgage, it means you have $50,000 (20%) in equity. It can also be commonly explained as loan-to-value ratio (the outstanding balance on your mortgage verses the actual value of your property). In the given case, the loan-to-value ratio would be approximately 80% ($200,000 is 80% of $250,000). Typically, lenders want at least 80% loan-to-value ratio to approve a home equity loan application.

In addition to the equity in your home, lenders consider several other factors before approving a loan application. Some of these factors include your length of employment, credit rating, & ability to pay back the loan amount. To improve your chances of getting mortgage approval, you can make minor changes & repairs in your house. Doing so will increase your property’s value and built up the equity. You can also work on improving your credit rating by avoiding delinquent accounts, over-the-limit credit lines, bankruptcy, and other serious credit-related problems. Also, make sure to pay back all your outstanding debts prior to applying for a home equity loan. All these things will show you in a good light in front of the potential lenders.