It is frustrating when your bank will not help — especially when you have equity in your home and approval seems like it should be straightforward. So what exactly is a home equity loan, and how can you use your equity when the bank says no? This guide explains what a home equity loan is, how it works, the two types, and why your credit matters far less than most homeowners expect.
What Is a Home Equity Loan?
A home equity loan is a simple, straightforward way to borrow against the value of your home, using the property itself as collateral. The key advantage is that your primary (first) mortgage stays untouched — the home equity loan sits behind it — and you can use the funds for almost any purpose: paying off debt, funding a renovation, covering taxes, or a down payment on a second property.
What matters most for approval is not your reason for borrowing, and often not your credit — it is how much you owe against your home versus what it is worth. That equity is the foundation of the loan.
How Does a Home Equity Loan Work?
Your approval is based on the equity in your home. You calculate that by taking your home’s estimated current value and subtracting everything registered against it — your mortgage, any secured loans, and any tax liens. What is left is the equity you can potentially borrow against, up to a combined 80 percent of your home’s value.
Use our home equity calculator to estimate your room. Many alternative lenders place far less weight on credit or income and approve primarily on the strength of your home’s value — which is exactly why homeowners the banks decline can still qualify.
The Two Types of Home Equity Loan
There are two main types: a fixed home equity loan and a home equity line of credit (HELOC). A fixed home equity loan does not require you to meet strict income or credit requirements, which generally makes it easier to approve. A HELOC can be tougher for someone with credit or income concerns because of its revolving structure.
What Is a Fixed Home Equity Loan?
A fixed home equity loan has a fixed interest rate and fixed monthly payments — the same amount, on the same day, every month. At closing you receive a lump sum to use as you see fit, and it functions much like a car loan or a mortgage. Payments continue until the loan is paid off or refinanced, and unlike a line of credit, you cannot re-borrow the amount once you have paid it down.
What Is a Home Equity Line of Credit (HELOC)?
A HELOC, by contrast, does let you borrow again. As a revolving line of credit, it works like a credit card: you have a set limit, you draw what you need, and once you pay it down, that room becomes available again. Rates are usually variable, and you only pay interest on the balance you actually carry. For a full walkthrough, see our guide to a home equity line of credit.
Reasons to Choose a Home Equity Loan in Canada
Every situation is different, but the common thread is having equity to borrow against. Homeowners use a home equity loan for a wide range of needs:
- Debt consolidation — combine high-interest debt into one affordable payment
- Home renovations — repairs or upgrades that increase your property value
- Property tax arrears — catch up on unpaid property taxes to protect your home
- Power of sale — stop a power of sale and avoid losing your home
- CRA debt — pay off Revenue Canada debt and stop a tax lien or garnishment
- Consumer proposal payout — pay off a proposal to rebuild your credit
At Turnedaway.ca our lending partners have made qualifying practical and simple. Apply online and we will let you know if you are approved, typically in 24 to 48 hours.
Will Bad Credit Get in the Way?
If you have equity and bad credit, you should still apply. Our logical lending approach means bad credit does not have to be a barrier — in fact, the majority of our home equity loans are arranged for homeowners with bad credit, no credit, low income, or hard-to-document income.
Where the big banks are bound by strict federal lending policies, alternative lenders offer far more flexibility. Credit histories come in all shapes and sizes, and every story is different. If the equity is there, that is what we work with.
Turnedaway.ca Can Help
Our common-sense lending approach has been working for clients for over 30 years. Whether you want to buy an investment property, pay off a consumer proposal, consolidate high-interest debt, or clear an income tax debt, we can help. As brokers, we have seen it all, and we make flexible, affordable approvals the priority.
Call for a free consultation at 1-855-668-3074 or apply online. We can approve homeowners in 24 to 48 hours.
What Is a Home Equity Loan FAQs
What is a home equity loan and how does it work?
A home equity loan lets you borrow against the equity in your home, using the property as collateral, while leaving your first mortgage in place. Approval is based mainly on your equity — your home’s value minus what you owe — rather than on your credit or income, up to a combined 80 percent of the home’s value.
What is the difference between a home equity loan and a HELOC?
A fixed home equity loan gives you a one-time lump sum with fixed payments you cannot re-borrow. A HELOC is a revolving line of credit you can draw, repay, and reuse, usually at a variable rate.
Can I get a home equity loan with bad credit?
Often yes. Alternative and private lenders approve primarily on your equity and property, so homeowners with bad credit, low income, or hard-to-document income can frequently qualify when a bank declines the file.
How much can I borrow with a home equity loan?
Generally up to 80 percent of your home’s value, minus your existing mortgage balance. Use our home equity calculator to estimate your available room.
