No sugar-coating involved – times are rough. Many Canadians are losing their jobs, being placed on temporary lay-offs, or working severely reduced hours remotely. The COVID-19 virus discovered originally in Asia more than 2 months ago now is just starting to take effect in the North American economy. Yet, it’s acting incredibly fast, catching most businesses and workers by surprise.
If you are experiencing financial difficulties from this situation, you are not alone. Many Canadians are feeling the ongoing havoc in the economy as money starts to get tighter and the usual recurring bill payments become more daunting.
Out of all this, a minor good news is that many mortgage lenders, utility providers, and telecom companies are understandably cutting customers some slack, letting them defer payments for the time being. With that said, if your income has been drastically cut or is nonexistent, you’ll still need a way of paying for basics like food, medication, and household supplies, and that could mean the need of borrowing money to cover those expenses.
If you’re looking to borrow money to cover some of these expenses, it is important to do so as affordably as possible, so you don’t get stuck paying loads of interest on your debt. If you own your home, getting a home equity loan could potentially be your best course of action.
What Is A Home Equity Loan?
If you own a home that you have equity in, borrowing against it may be your easiest and most affordable option. Equity is the portion of your home you own outright. For example, if your home has a market value of $200,000 and your mortgage balance is $150,000, you have $50,000 of equity in your home, or 25% worth of equity. You usually need at least 20% equity for borrowing to be an option.
You can borrow against your home in one of two ways: a home equity loan or a home equity line of credit (HELOC). With the first, you take out a lump sum that you pay off over time at a fixed interest rate. With the latter, you get access to a line of credit you can borrow against as needed, and you only pay back the amount you withdraw. The interest rate on a HELOC is generally variable. Compared to other borrowing options, home equity loans and HELOCs still offer some of the lowest rates you might find. And qualifying for either one is easy provided the equity in your home is there, since your home itself is used to secure the loan; neither your credit score or your employment record will be much of a factor in getting approved.