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When your finances do not measure up to the standard requirements of being pre-approved for a mortgage, some people may not know where to turn. Acquiring bad credit can be detrimental to various aspects of your life, but especially when striving to obtain a home equity loan.

Although individuals with bad credit may not qualify to go the traditional route with a large bank, there are mortgage brokers, financial institutions and private lenders who work with people in these specific circumstances. They offer enhanced flexibility and freedom, in fact.

It is recommended to check your credit score before seeking a mortgage or home equity loan if you are worried that yours may be low; this can be done free of charge in Canada through TransUnion and Equifax, as well as some newer service companies like Mogo Mortgage and Borrowell. Someone with bad credit typically has a credit score below 600 out of a possible 900 (the lowest is 300).

While technically considered average, a score between 600 and 700 can be eligible for a bad credit mortgage if an individual has solid income sources—which is more difficult for those who work on commission or work for themselves, but still possible to determine a projection of how much you will make based on your averages.

A reputable lender can provide a bad credit mortgage or home equity loan despite their client having a lower credit score. However, it is equally important for that individual not to look far beyond one’s means for a home to avoid being unable to make mortgage or home equity loan payments moving forward.

Someone with bad credit must have solid approval of their property to assure it is in average to good condition. Although individuals can still obtain a bad credit mortgage, they may be sanctioned with greater interest rates and extra fees from lenders and mortgage brokers as a result. Whether good or bad, a person’s credit is considered a direct reflection of how risky they are considered to loan money to.

One of the key elements of owning property is maintaining or increasing the value of your investment so that when it comes time to sell, you turn a profit. While general upkeep and repairs are essential, renovations, extensions and additional amenities can all add to the value of your property. But how can you free up the money to do that?

Refinance and Build

The most direct option is to consider refinancing your existing mortgage arrangements. By shopping around you can find alternate schedules or lower rates of interest that free up some of your income each month.

If you are embarking on a long-term project, where work will be undertaken (and services or materials paid for) monthly, then having that extra cash flow each month allows you to plan and budget more effectively. Alternatively saving the money each month for a period, such as a year, can total a significant sum that can be used as a deposit or full payment for improvement works.

When you consider alternative finance it’s best to begin by determining your budgetary needs. Once those are set, you can start looking for a financial product that will allow you to meet the targets you have. Also, be mindful of what fees you may incur for switching products and to include this in your calculations. If you are looking at a decreased interest rate, you should look to decrease by at least 1.5% to have the desired money-saving effect. 

Home Equity

Refinancing is an option during the earlier phase of your mortgage, but the later into the schedule you are, the less likely you are to be able to make a saving. At this point, a Home Equity Loan would serve your needs much better.

With a Home Equity Loan, you can borrow money against the equity that has accrued in your property. This type of loan comes with its own schedule of repayments and would allow you to put the borrowed sum directly to use for the construction plans you have in mind.

This is particularly useful if you have a large-scale project with constant work going on. Having a lump sum available for works means they can continue unabated and you can start to benefit from the additional value the works bring to your property.

Construction Mortgages

In general, a construction mortgage is designed to support people who are building their home from scratch. They differ from domestic mortgages in both their structure and the rigor taken by lenders during the assessment phase. Installments of the loan are then issued to the borrower at key stages through the building process.

Some lenders offer a variant of this type of loan for specific construction work. Additional buildings on your land for example. This loan is closer to a standard loan in structure as it does not build upon your existing circumstances, though in some situations you may be required to offer a guarantee against the loan. These kinds of conditions vary from product to product, as do the schedule length and interest rates.

Finding What Works

What’s clear when you start to investigate any of these options is that the variety of products is huge and that the criteria within them also vary greatly. It can become dispiriting having to plow through brochure after brochure, website after website, to try and find that elusive product that gives you what you need.

At Canadalend.com all our advisors are independent experts. Unlike other institutions, we don’t incentivize them to recommend products that aren’t right for you. Instead, they use their years of experience to find the best product for you from thousands of potential lenders.

Contact Canadalend.com today to find out how much time and money you could save.

When the time comes to consider a secondary loan, it may be worth considering your home equity position. Equity builds up in your home, or other property, over time, as you pay off a loan secured on it. This equity is the percentage of the property you own through repayments of the first loan.

It has become increasingly popular for borrowers to utilize this equity as a form of guarantee on a second loan. Home Equity Loans can be used for a variety of reasons. Depending on what you want, the loan is for will determine what type of home equity loan you should be considering.

Home Equity Loan

The standard Home Equity Loan (HEL) works much like a regular loan. You and the lender agree on a schedule for repayments along with interest rates, penalties, etc. On the whole, you may find the interest rate on a home equity loan is slightly higher than a standard loan. This is because it is the second loan on the same property. In the event of your bankruptcy, the first lender will be paid first from the sale of your estate. If there's nothing left after that, the second lender doesn't get paid.

To minimize the potential for paying a higher rate, borrowers are best advised to shop around. The major banks are a good place to start, but it’s also worth seeing what an alternative lender might have to offer. They can often equal, if not beat, bank rates and can be more flexible on terms, fees, and penalties.

Home Equity Loans are often used as a way to pay bills. If this is the case for you, keep in mind that most banks will want to see a good credit score and predictable future earnings.

Home Equity Line of Credit

A home Equity Line of credit functions in the same way as a HEL, the equity in your property determines how much you can borrow. However, instead of the loan amount being made available to you as a lump sum at the start of the schedule, it instead forms a pool of money you can draw from.

This form of loan is particularly useful for borrowers that want to undertake a period of repairs to their home. This may be part of ongoing regular maintenance and upgrades, or it might be in the year or so before putting a property up for sale.

Having a pool of money that you can borrow from as and when you need to allows borrowers to plan with confidence without the worry of how they will pay any particular bill for works as and when it comes. They can simply release funds from the line-of-credit pool, and know they're not going to overspend the initial borrowing figure.

Home Equity Lenders

As previously mentioned, Home Equity Lenders can sometimes get the worst part of a bankruptcy situation. When dealing with banks, their inclination is to penalize the lender with higher rates. This is their way of protecting themselves against the worst, even if it doesn't happen.

Many Canadians who take out Home Equity Loans find a better deal through alternative lenders such as credit unions or other financial institutes. The advantage of these lenders is their flexibility, where banks tend to lean towards rigidity. The downside? There are only a few major banks; there are a lot of alternative lenders.

At Canadalend, our independent experts have access to hundreds of different lenders and their financial products. Unlike advisors at a bank, they don't get incentivized to sell you a certain product. Their sole concern is finding the lender and product that meets your needs, whether that's a Home Equity Loan or a Line of Credit.

To find out how you can make your home equity start working for you and your future, contact Canadalend.com today and talk to one of our experts.