Why Use Fixed Rate Home Equity Loans

If you are looking for how to use home equity to consolidate high interest debt or cover urgent expenses, a fixed rate home equity loan might be a good idea to access funds right now.

And why is that you might wonder?

Although Canada’s central bank has slashed interest rates to all time lows in an attempt to combat the COVID-19 pandemic and stimulate the economy, many financial institutions, instead of trying to keep the rates low and stimulate borrowers, are actually raising them. In fact, some of the big banks are even cutting discounts on prime rates. 

Interest rates can impact all financial areas from mortgages and loans to pensions or savings. That’s why, for all those looking to borrow, save or invest in Canada in the near future, things are starting to look not so promising.

So what exactly is going on?

The explanation has a lot to do with the pandemic’s after effects and the resulting economic shock. The majority of the banks’ clients, both businesses and individuals, have had a massive decline in revenue. With the economic and financial uncertainty of the next following months, not too many clients are eager to take out new loans, except for maybe when needing to consolidate debt. 

With the number of borrowers going down, banks are starting to run out of credit too. And if you are not yet familiar with how banks are making their profit, you should know that lenders don’t usually have money at ease. Their earnings are resulting from the difference between what they are charged for when borrowing money themselves, and the amount they charge their borrowers with.

Although there is no way to predict what will happen in the future, accelerated long term credit disruptions are expected to happen for at least the next 6-12 months. When the economy seemed more stable, lenders were more eager to cut rates as low as possible. But since right now they are feeling just as uncertain about the future as the rest of us,  their rates are getting higher.

With all this being said, loan rates might skyrocket at any time now and your monthly payments might become unaffordable.

Is there any way of borrowing money without having to worry about your monthly payments increasing month after month?

If you are a homeowner, one way to combat the risk of being unable to pay the higher interest rates is to get a fixed rate home equity loan. By using only your house as a collateral, home equity loan uses are diversified and up to the borrower, but best suited for large, one time expenses.

Are There Fixed Rate Home Equity Loans?

Being a type of second mortgage, home equity loans are riskier for lenders and as a result, have higher interest rates than mortgages. That’s because in case of foreclosure, the first one to be paid off when the house is sold will be the mortgage and only if there’s any money left the home equity loan will be covered too.

Although with equity rates a bit higher than mortgages, being an instalment loan with fixed interest rates, home equity loans are less riskier for borrowers and have lower interest rates than other types of loans like credit cards or personal loans. And if you pay them off early, you stand to save even more on interest costs.

How Does A Fixed Rate Home Equity Loan Work?

Unlike a home equity line of credit (HELOC) which functions more like a credit card, home equity loans are fixed rate loans that allow you to borrow against the value of your property, by giving you all the money at once.

Home equity loans have various uses and can be practically used for just about anything. Except for home renovations or paying debt, you could be using a home’ equity to buy investment property, another house or even to invest in the stock market.

And the best part is that in times of uncertainty like the ones we are experiencing now, their monthly payments are predictable over the entire life of the loan. 

Ways To Get a Fixed Rate Home Equity Loan 

With real estate in Canada being in near total shutdown, many lenders are pushing the brakes on mortgages and home equity loans in an attempt to protect themselves.

Especially for riskier borrowers that cannot meet the factors banks require of them for tapping into the equity of their homes, the best solution right now for getting a fixed rate home equity loan in Vancouver is to work with a private mortgage broker.  

A reputable mortgage broker in Vancouver, can guide borrowers towards the best private mortgage lenders and the fastest home equity loan solutions, without needing to scrutinize their financial situation for factors like debt-to-income ratio, loan-to value ratio, credit score or annual income. Mortgage brokers know that the right type of loan depends on each borrower’s specific needs and personal situation and unlike banks, their loan approval is not related to how the money will be spent.

With private lenders borrowers can use their home equity loan however they wish, without any proof of income or credit report required. The only thing needed is a verification of the current value of their home.
As a last word, if you want to find out more whether a fixed rate home equity loan is right for you or not, don’t hesitate to ask for our help. And if you’re curious to check out our home equity products’ competitive interest rates in Canada, contact us today and we’ll give you a free assessment over the phone.