Looking for Home Equity Loan Options in Ontario?

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If you're a homeowner in Canada and need to borrow money—maybe for debt consolidation, home renovations, or a big purchase—you’ve probably come across two popular options: a home equity loan and a personal loan.

At first glance, they both give you a lump sum of cash. But they’re very different when it comes to how you qualify, how much you can borrow, the interest you’ll pay, and what risks are involved.

This guide breaks down the key differences, approval process, borrowing limits, rates, and ideal use cases—so you can confidently choose the one that fits your needs.

Key Differences: Home Equity Loan vs. Personal Loan

Let’s keep it simple.

A home equity loan is a secured loan. It uses your home as collateral. You borrow a fixed amount of money, get it all at once, and repay it over time with a fixed interest rate and fixed monthly payments. It's like a second mortgage.

A personal loan, on the other hand, is unsecured. It’s based on your credit score, income, and debt history—no home or other asset is tied to the loan. You still get a lump sum and repay it in regular installments, usually with a higher interest rate.

Quick breakdown:

Home Equity Loan: Secured by your home, lower rates, bigger loan amounts, more paperwork

Personal Loan: No collateral, faster approval, higher rates, smaller loan amounts

Both have their pros and cons. Your choice depends on what you qualify for, how much you need to borrow, and how comfortable you are using your home as security.

How to Get a Home Equity Loan vs. Personal Loan

The application process for these two products is very different—mostly because one involves real estate and the other doesn’t.

To qualify for a home equity loan, you need to:

Own a home with enough equity (usually at least 20%)

Work with a licensed mortgage broker

Provide income documents (job letter, pay stubs, or tax returns)

Go through a credit check

Complete a home appraisal (required by most lenders)

Sign legal documents to register the loan on your property title

This process can take 1 to 3 weeks, and there are closing costs like appraisal and legal fees (often $1,000–$2,000).

Getting a personal loan is much faster and simpler, you'll need:

Proof of income (pay stubs or bank statements)

A decent credit score

Low debt-to-income ratio

Most lenders can approve you in a day or two, and you’ll get the money shortly after that. There are usually no upfront fees, though some lenders charge a small origination fee.

If you need cash urgently, a personal loan is quicker. But if you're not in a rush and want a lower rate, it might be worth going through the extra steps to get a home equity loan.

How Much Can You Borrow?

This is a major difference between the two.

How Much Can You Borrow with a Home Equity Loan

You can typically borrow up to 80% of your home’s value, minus your existing mortgage balance.

Example:

Home value: $750,000

80% of value = $600,000

Mortgage balance = $400,000

Max home equity loan = $200,000

If your credit and income qualify, a lender may approve you for a loan up to that amount.

How Much Can You Borrow with a Personal Loan

These are much smaller. Most Canadians are approved for $5,000 to $30,000, depending on their credit score and income. High-income borrowers with excellent credit might get more, but most loans stay in that range.

If you only need a small amount, a personal loan could be enough. But for bigger goals like major renovations or consolidating six-figure debt, a home equity loan gives you more room.

Credit Score for a Home Equity Loan vs. Personal Loan

Both types of loans involve credit checks, but how much your score matters depends on the loan type.

Home Equity Loan

Because the loan is backed by your house, lenders are more flexible.

B lenders can work with scores as low as 640, depending on your income and equity.

Private lenders usually do not have credit requirements but better credit means better pricing.

Even with poor credit, you may still qualify—as long as you have enough equity and can prove you can repay the loan.

Personal Loan

This is where things get tighter.

Since it’s unsecured, lenders rely heavily on your credit history. Most banks and credit unions want to see:

A credit score of 660–700+ for standard approval

Steady income

Low existing debt

If your score is below 650, you’ll likely be offered a high rate or denied altogether unless you apply through a subprime lender.

Interest Rates for a Home Equity Loan vs. Personal Loan

Interest rates are where home equity loans shine—especially in 2025, with rising rates across the board.

Home Equity Loan

Because this is a secured loan, lenders are taking less risk. That means you can get much lower rates, especially from alternative (B) lenders willing to work with a wider range of credit scores.

Current home equity loan rates (2025):

From B lenders: starting around 8% with terms over 1 year (i.e. 3 years)

From private lenders: starting around 8%, but with usually with 1-year terms

Rates are typically fixed, so your monthly payment stays the same for the life of the loan.

Personal Loan

These are unsecured loans, so lenders charge more to offset the risk.

Current personal loan rates in Canada (2025):

Good credit: 9% to 12%

Fair credit: 14% to 19%

Bad credit: 22%+ (from subprime or online lenders)

You may also see variable rates, depending on the lender. But either way, they’re almost always higher than home equity loan rates.

If you plan to borrow a larger amount and want to keep your monthly payments lower, the home equity loan will usually cost you less in interest.

When is a Home Equity Loan a Better Option?

A home equity loan makes the most sense when you’re a homeowner with equity and need access to a larger amount of money at a lower interest rate.

Here are some common situations where it’s the better choice:

You own a home but have bruised credit

Even with a lower credit score, you may still qualify for a home equity loan from a B lender if you have enough equity and stable income. That’s not usually the case with personal loans, where bad credit often leads to rejection or sky-high interest.

You’re consolidating high-interest debt

If you’re paying 19.99% on credit cards or 13% on an unsecured personal loan, switching that debt into a home equity loan with a 10% rate could cut your monthly interest in half or more. And since payments are fixed, you’ll have a clear end date.

You’re planning a major renovation

Renovations can easily cost tens or even hundreds of thousands of dollars. A home equity loan gives you the lump sum you need with long repayment terms and a manageable monthly payment.

You want predictable payments

Since most home equity loans come with fixed interest rates, you’ll know exactly what your monthly payment will be. That’s helpful if you’re budgeting for a large project or trying to stay on a strict repayment plan.

When is a Personal Loan a Better Option?

Personal loans are quicker and easier to get—especially for borrowers who don’t want to involve their home or who only need a smaller amount.

Here’s when a personal loan may be the better option:

You don’t own a home

Not everyone is a homeowner. If you’re renting or living with family, a personal loan may be your only option.

You only need a small loan

If you’re borrowing $5,000–$20,000 for something short-term, like replacing appliances or covering emergency expenses, a personal loan is likely faster and cheaper in terms of fees (even if the interest is higher).

You need money fast

Personal loans from banks, credit unions, or even online lenders can sometimes be approved within 24–48 hours. A home equity loan, in contrast, might take 1–3 weeks because of the appraisal and legal steps.

Home Equity Loan vs. Personal Loan in Canada

Choosing between a home equity loan and a personal loan in Canada depends on how much you need to borrow, your credit score, and whether you’re comfortable using your home as collateral. Home equity loans usually offer lower interest rates and higher borrowing limits, but they involve more paperwork, slower approval, and closing costs. Personal loans are quicker and unsecured, making them easier to access for smaller amounts—but the interest rates are higher.

To make the right choice, speak with a mortgage professional. They can help assess your financial situation and recommend the option that best suits your needs and goals.