There are so many different types of mortgage products available these days that it's hard to know what’s what. Equity only mortgages in Ontario are a great mortgage product for a consumer who has unconventional financial circumstances. So what are equity mortgages in Ontario anyways?
Equity only mortgages in Ontario are mortgage loans that are approved primarily on the equity that a person has in their property. When an individual is purchasing or refinancing a unique property type, has problem credit or difficulty proving their income they will generally have to look at taking out an equity only mortgage.
In Canada, banks who loan more than 75% of a property's value must obtain high ratio default insurance from CMHC (Canadian Mortgage and Housing Corporation). This protects the bank in case the homeowner defaults on their mortgage. CMHC insurance is one reason that folks can purchase homes with low down payments. When a mortgage is CMHC insured the applicant will have to have their credit and finances reviewed by both CMHC and the bank. If the bank approves the mortgage and CMHC does not then the bank cannot offer financing in excess of 75% of the property's value.
Does that mean that a mortgage that is less than 75% of a property is an equity only mortgage? Not necessarily. Where banks are concerned if you have bad credit or have little income, a bank may still reject your financing even if you have more than 25% down payment or 25% equity in your home.
Generally, equity only mortgages are offered by finance companies, trust companies, mortgage investment corporations and private lenders. Equity only mortgages in Ontario are usually arranged through a Mortgage Broker. Interest rates will generally vary on equity only mortgages in Ontario depending on who the mortgage lender is.
Because equity only mortgages are approved based on the amount of equity in a home, an appraisal is always required so that the lender can verify the amount of equity in the property. Also, the amount of equity you will need to have in the property to qualify will depend on your personal and financial circumstances. For example, if you have excellent credit but are self-employed and have difficulty proving your income you may be able to obtain an equity only mortgage of up to 75%-80% of the value of your home. Alternately, if you had really, really terrible credit you may only be able to borrow 65%-70% of the value of your home.
Whether you are purchasing a home or refinancing, working with an experienced Mortgage Broker is your best bet. They can review your credit and mortgage application with you to help you understand which type of mortgage you will need, which lenders would be likely to offer you the financing and who can give you the best deal. The good news is as a Canadian consumer there are many mort