How Much Can I Borrow Against My Home?

There has typically been a lot of uncertainty and questions around the idea of borrowing money using your home as security, or in other words, borrowing against the equity that has built up in the value of your home. The question that is most frequently asked is “How much can I borrow against my home?”. There are many parts to this question, that we need to unpack as figuring out how much you can borrow hinges on several other factors.

To begin answering this question we are going to start by looking at the rules and guidelines of how much you are able to borrow against your house in Canada. There is a maximum percentage amount that you can borrow against your property. In other words, there is a minimum equity position that must remain in your home. We are going to look at the equity you have on the house and several other factors that can impact qualifying for a loan.

How Much Can I Borrow Against My Home Equity?

Right from the onset, in order to borrow money (getting a loan against) your home, your home must have the necessary equity. The term home equity refers to the portion of the house value that you own or have paid.

The equity portion can be 100% if you have no mortgage and have either paid out your mortgage or paid for your house in cash. Essentially, if there is no mortgage and no charge registered against a property, it is referred to as a clear title property.

You calculate the equity by taking the value of the house less what is owed in mortgage. This means your equity can be 100% the market value of the house or a portion of what you have amortized on the loan. If you have a 100% equity ownership of your home, then there is a good chance that your title is free and clear. If you have a home equity line of credit that is attached to your property, then your title is not clear title, as there is a charge against it, and you have the ability to take

How Much Can I Borrow Against My Home In Canada

As a general guideline in Canada, you are able to borrow up to 80% of the value of your home.
Looking at the following example to illustrate further, if your home is valued at 1,000,000.00 dollars, you are able to borrow up to 800,000.00 thousand dollars against it. A minimum of 20% equity is required to remain in your home – in this case $200,000.00 thousand dollars.
Now, just because you have the equity available, it does not necessarily mean that you automatically get approved for the financing. You must qualify by meeting other lender specific requirements and guidelines.
There are different types of borrowing requirements depending on the type of financing you are looking for.

Triple A bank financing requires you to qualify based on your declared taxable income. We are going to be covering some general guidelines here, note that depending on the circumstances, there are possible exceptions that can be made to these guidelines. Your mortgage broker will be able to better determine whether you qualify for certain exceptions. One of the biggest benefits in working with a mortgage broker is that there are a number of options – not just one through your bank.
The rule of thumb for debt service ratio calculations is 39% of your gross taxable income can go towards your housing costs such as the mortgage payment, the property taxes, the condo fees if applicable, and the heating costs of the home that you are looking to purchase. This is referred to as the Gross Debt Service Ratio (GDS).

44% of your gross income can go towards the housing costs mentioned above plus any other debt or obligations that you carry monthly such as car loan payments, lines of credit payments, credit cards etc. This is referred to as the Total Debt Service Ratio (TDS).

There are some lenders that have relaxed guidelines the more equity you have and plan on leaving in your property. If your property has a rental suite, this can also be used towards the affordability calculations. Some lenders are more aggressive with the amount of rent that you can use in your calculations. A good mortgage broker will be able to tell you and show you how one bank or lender will qualify you for a larger mortgage over another. This is an added benefit of being able to shop more than one lender.

There are also alternative lending options that are available. The B channel is what they are often referred to, and the Private channel. The costs for these options vary depending on the full financial picture.

If you are looking for a more precise assessment, feel free to reach out and we can set up a time to discuss your specific situation, and provide you with some relevant advice.

How Much Can You Borrow Against Your House?

Another way to borrow against your home is a secured line of credit, or more commonly referred to as a Home Equity Line Of Credit (HELOC). If you have no fixed mortgage component and just a line of credit component, the maximum you can borrow is 65% of the value of the home. The line of credit portion can only be 65% of the value of the home maximum. This rule was implemented a number of years ago, and the reason has to do with the revolving nature of a line of credit. You have a limit that you can draw on repeatedly after paying the balance off.

If there is a fixed component as well, then the total borrowing can be up to 80% of the value of the property, so long as the line of credit component does not exceed the maximum 65%. Yes, it can get a little confusing, the following example can hopefully clear things up a little bit.

Let’s take a property valued at $1,000,000.00 for example.

As long as the line of credit does not exceed $650,000 (65% of the 1,000,000) then the maximum that can be borrowed is a $200,000.00 mortgage and a $650,000,00 (the total is 80% of the value of the property of $1,000,000.00).

The technical terms for these guidelines is Loan to Value, and Equity Component. If all you have is a HELOC, then it can only be 65% of the value of the property, in other words there must remain an equity component of 35% in the property. Combining the fixed mortgage component and the line of credit (HELOC), the total LTV can be 80%.

 

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