How to Get a Home Equity Loan with Bad Credit Online

If you're a homeowner in Canada, you've probably heard the term "home equity loan," but you might not know exactly how it works. Simply put, a home equity loan allows you to borrow money by using the equity in your home as collateral. Equity is the difference between your home's current market value and how much you owe on your mortgage.

How Does a Home Equity Loan Work in Canada?

Let's say your home is worth $500,000, and your current mortgage balance is $300,000. That means you have $200,000 in home equity. A home equity loan lets you borrow against this amount. Lenders usually let you borrow up to 80% of your home's value, though this can vary based on your financial situation and the lender’s policies.

One of the key benefits of a home equity loan is that you usually get a lower interest rate than with unsecured loans, like credit cards or personal loans. That's because your home backs up the loan, making it less risky for the lender.

Can You Get a Home Equity Loan with Bad Credit?

The good news is, yes—you can get a home equity loan with bad credit.

When you're applying for a home equity loan, the most important factor lenders look at is how much equity you have in your home. Having a lot of equity significantly improves your chances of approval, even if your credit score is less than ideal.

However, your credit score does matter in determining the interest rate and the amount you can borrow. If your credit score is low, the lender might offer you a higher interest rate or a slightly lower loan amount. This doesn't mean you can't secure a good deal, though. If you have substantial equity in your home—meaning your loan-to-value ratio is low—you can still get reasonable pricing.

On the other hand, having good credit will always help. It can lower your interest rates and might even increase the amount lenders are willing to lend you. But again, don't be discouraged if your credit isn't perfect; your home equity can still open the door to affordable financing.

Is a Credit Check Required for a Home Equity Loan?

Yes, a credit check is always required by any reputable home equity loan lender.

Lenders perform this check for two critical reasons:

Risk Assessment: They must look for any hidden surprises in your financial history (like recent bankruptcies or massive debts) to confirm the level of risk associated with the loan.

Rate Setting: They want to ensure they are offering you the best possible rate your credit profile allows. Even with bad credit, a lender needs to know the exact state of your file to calculate a fair rate tailored to your situation.

For borrowers with bruised credit, the primary factor for approval shifts from your score to the equity you have in your home, but the credit check remains a mandatory first step.

Will Applying for a Home Equity Loan Hurt My Credit?

Yes, applying for a home equity loan results in a hard inquiry on your credit report. This can cause a small, temporary dip in your credit score, typically only a few points. However, the impact is minimal and short-lived, especially if you have an otherwise strong repayment history.

More importantly, if you are shopping around to compare rates, credit scoring models recognize this. Multiple hard inquiries for the same type of loan (like a mortgage) that occur within a short period (often 14 to 45 days) are typically grouped and treated as a single event. This means you can shop for the best rate without worrying about repeatedly damaging your score.

What's a Good Credit Score for a Home Equity Loan?

A credit score of 680 or higher is generally considered a good score to obtain the best possible interest rates and terms on home equity financing. However, the score you actually need depends entirely on the type of lender and product you choose.

Score Requirements by Lender Type

Your credit score is the primary factor that determines the cost of your loan, while the equity in your home determines your basic eligibility. This is why the lending market is split:

1. Major Banks and Credit Unions

Major financial institutions do not offer what the market refers to as "Home Equity Loans." When they lend against your equity, they offer secured credit lines (HELOCs) or standard second mortgages.

The defining factor is that these institutional products have strict credit and income requirements. They primarily assess your ability to repay the loan from your verifiable income sources, meaning a high credit score (680 or higher) and stable, verifiable employment are mandatory. If you have bruised credit or non-traditional income, your application for these bank products will likely be declined.

2. Private Equity-Based Lenders

This is the sector where having bad or bruised credit becomes manageable. The financing product offered here is often termed a "Home Equity Loan" because the approval is primarily based on the asset's value (your home equity).

While a score of 680 is always beneficial, approval relies much more heavily on the amount of usable equity you have than on your credit score.

Since these lenders use the value of your property as the main form of security, they can often approve borrowers with scores well below 600. The trade-off is that these loans will carry higher interest rates compared to what a borrower with excellent credit could obtain from a major bank.

Learn more about home equity loans in Ontario

Check your eligibility in under 60 secs.

See How Much I Qualify For

Can You Get a Home Equity Loan Without Income?

Yes, you can also get a home equity loan even if you don't have a traditional source of income. The key factor lenders consider in this scenario is how much equity you have available in your home, or your loan-to-value (LTV) ratio. The more equity you have, the easier it will be to qualify, even if you don’t have regular income.

Some lenders allow interest reserves where you don’t need to make monthly payments right away. Instead, they let you roll your interest payments into the loan itself. This means no monthly payments are needed for the entire term, typically up to 12 months. This can be very helpful if you need money now but anticipate being able to repay the loan later, such as when you sell the home or get a new job.

If this sounds like it might work for you, talk to your broker about setting up an interest reserve.

How to Apply for a Home Equity Loan Online

After submitting your application, you'll get two emails with the first email inviting you to schedule a call with our team. This call typically takes about 15 to 20 minutes and helps your agent understand your unique situation and goals. You'll receive a conditional approval during or shortly after this call.

The second email contains a link for you to provide additional details to fast-track your application.

Once all your details are submitted, your broker will prepare a Credit Summary Report. This report clearly lays out your credit history, debt-to-income ratio, and what loans you qualify for. It even shows you how much money you could save if you're consolidating debts.

If you're happy with the terms presented, your broker will gather the necessary documents to finalize your application.

Applying for a home equity loan generally takes around 1 to 2 weeks from start to finish.

Documents Needed for Home Equity Loans in Ontario

When applying for your home equity loan, you'll typically need the following documents:

Mortgage statement: This shows how much you currently owe on your home.

Property tax bill: This verifies your property taxes are up-to-date.

Income confirmation: Even if your income isn't the main approval factor, having this documentation helps lenders offer the best terms possible.

Appraisal arranged by the broker: Your broker will arrange an appraisal with a lender-approved appraiser. This appraisal confirms the market value of your home, ensuring everyone is clear on exactly how much equity you have.

Home Equity Loan Interest Rates in Ontario

As of April 2025, interest rates for home equity loans in Ontario typically start around 6.99%. Your exact rate depends mainly on the following:

Equity in your home: The more equity you have, the lower your interest rate will typically be.

Credit and income: Better credit and stable income can further reduce your interest rate.

Even with less-than-perfect credit, if you have significant home equity, you can still secure competitive rates. This makes home equity loans especially attractive for consolidating debts or managing financial needs at a lower cost than unsecured loans.

How Much Can You Borrow with a Home Equity Loan?

The amount you can borrow with a home equity loan depends on a few key factors, but primarily on the equity in your home. In Canada, lenders typically allow you to borrow up to 80% of your home's market value minus any outstanding mortgage.

Suppose your home is worth $600,000.

You currently owe $350,000 on your mortgage.

80% of your home's value is $480,000 (80% of $600,000).

Subtracting your existing mortgage ($350,000), you have $130,000 of equity available to borrow.

While 80% is common, some private or alternative lenders may allow you to borrow slightly more—sometimes even up to 85%, depending on your situation.

It's important to discuss your exact borrowing limit with your broker, who will help calculate exactly how much equity you have and how much you can responsibly borrow.

Common Reasons to Get a Home Equity Loan

Home equity loans are popular for many reasons beyond debt consolidation. Here are some of the most frequent uses:

Debt Consolidation

Using your home equity to pay off credit cards and other unsecured debt will significantly reduce your interest rate and your monthly interest payments. From our experience, consolidating $50,000 in credit card debt can save you around $750 per month or $9,000 per year.

Home Renovations

Renovating your home not only improves your living space but can significantly boost your property's value. A home equity loan lets you access funds at lower rates than credit cards or personal loans, making major renovations more affordable.

Living Expenses

Occasionally, homeowners face temporary financial hardship, like job loss or reduced income. In these cases, a home equity loan can provide breathing room to cover everyday expenses until finances stabilize.

No matter the reason, it’s crucial to have a clear plan for repayment so you protect the equity you've worked so hard to build in your home.

Investments and Opportunities

Some Canadians use home equity loans to invest or capitalize on business opportunities. Because interest rates on home equity loans are relatively low, this can be a strategic way to access capital if you see a promising investment or business idea.

Apply Online for a Bad Credit Home Equity Loan

Getting a home equity loan with bad credit online in Canada is entirely possible—and can be one of the smartest financial decisions you'll ever make. By leveraging the equity you've built up in your home, you can access money at lower interest rates, consolidate debt, and handle large expenses confidently.

Remember, while your credit score matters, it's not the only factor lenders consider. With significant equity in your home, even borrowers with less-than-perfect credit can find affordable solutions.

Get Personalized Advice

with an Award-Winning Mortgage Broker

4.9 from 812 reviews

Schedule My Call