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Compare personal loans vs home equity loans

2 ways to make your next big financial move. What are the differences?

If you’re a homeowner and need to borrow money for a renovation or other large expense, you may be considering getting a loan. Personal loans and home equity loans vary in a few ways, presenting different risks and rewards.

Read our guide to learn more about how they differ and how you can compare your options to make the best choice for your financial situation.

home-loan-imageSo, what is a home equity loan?

Home equity loans and lines of credit let you capitalize on the equity you have in your existing home. They enable you to utilize the capital gains of your house without needing to sell it. Your home equity is essentially the current value of your property minus the mortgage you owe.

Current home value – mortgage = home equity

In Canada, you can borrow up to 65% of the value of your home. This means if your home is worth $500,000, you can access up to $325,000. But, any outstanding mortgage balance plus your home equity loan or line of credit cannot equal more than 80% of your home’s value. So if you’ve only paid $100,000 on your $500,000 home, you wouldn’t be able to borrow any money because you simply don’t own enough equity in your home. If you’d paid $200,000 on your mortgage, you’d be able to borrow up to $100,000 through a home equity line of credit (HELOC).

How much can I borrow?

Here’s how to figure out how much you can borrow with a home equity loan or line of credit:

  • Take the value of your home and multiply it by 0.8 (0.8 represents the maximum amount of 80%).
  • From this number, subtract the balance of your mortgage.
  • The remaining amount is the amount you’d be able to borrow, as long as the amount does not exceed 65% of the value of your home.

What you need to know about personal loans

Personal loans usually come either secured or unsecured.

  • Unsecured personal loans give you access to funds without you providing any type of collateral.
  • Secured personal loans require you to list a valuable asset as collateral, such as equity in your home or your car, in order to guarantee the loan.

You can also usually choose between 2 types of interest rates:

  • Fixed rate personal loans have interest rates that stay the same throughout the loan term. This means your repayments will be the same every month throughout the entire term of your loan.
  • Variable rate personal loans change throughout the term of the loan, usually starting out with a lower interest rate than their fixed rate counterparts. There is, of course, the possibility that the interest rate will increase over time.

Here are a couple of things to keep in mind:

  • Most personal loan lenders only offer borrowing amounts up to $35,000 (and sometimes slightly higher), whereas you’ll likely be able to borrow up to 80% of the value of your home, which could be a lot higher than $35,000.
  • However, even with an equivalent interest rate, a personal loan may be the cheaper option. Large monthly payments combined with a loan term of 5 or 7 years means that the interest you’ll be paying on a personal loan will be less than the interest you’ll pay on a home equity loan.

Compare your personal loan options

1 - 8 of 8
Name Product Interest Rate Loan Amount Loan Term Requirements Link
Loans Canada Personal Loan
Secured from 4.70%, Unsecured 8.00% - 46.96%
$300 - $50,000
3 - 60 months
Requirements: min. credit score 300
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More Info
A broker with the largest lender network in Canada. Fill out one application and get matched for free with lenders.
goPeer Personal Loan
8.00% - 33.92%
$1,000 - $25,000
36 - 60 months
Requirements: recommended income $40,000/year, no payday loan debt, min. credit score 600
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More Info
Connects creditworthy Canadians looking for an unsecured loan with Canadians looking to invest. Apply in minutes and get a response within 24 hours.
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Requirements: min. income $1,800/month, 3+ months employed, min. credit score 500
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More Info
If you're not eligible for an unsecured loan, you may be offered a credit builder loan to help improve your credit score.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 60 months
Requirements: min. income $1,600/month, stable employment, min. credit score 550, no bankruptcy
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More Info
Apply in less than 5 minutes for an unsecured loan and if approved, receive financing in as little as 24 hours.
Loanz Personal Loan
29.90% - 46.90%
$1,000 - $15,000
12 - 60 months
Requirements: min. credit score 570, min. income $1,200/month, 3+ months employed
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More Info
Apply online and get approved in less than 3 minutes. Receive funds in as little as 15 minutes. Borrowers with bad credit or no credit can apply.
LoanConnect Personal Loan
Secured from 4.99%, Unsecured 5.99% - 46.96%
$100 - $50,000
3 - 120 months
Requirements: min. credit score 300
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More Info
Fill out one application with this broker and get pre-approved by different lenders in 5 minutes.
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Requirements: min. income $13,000/year, min. credit score 500
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More Info
Get a free quote without affecting your credit score and get an unsecured loan the same day. 100-day money-back guarantee: If you're not happy with your loan, pay back the principal and get the 100 days of paid interest and fees back.
Fairstone Secured Personal Loan
19.99% - 23.99%
$5,000 - $50,000
36 - 120 months
Requirements: must be a homeowner, min. credit score 560
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More Info
Use your home equity to get a secured loan with flexible repayment options. Get a free quote without impacting your credit score.

Compare up to 4 providers

Main differences between personal loans and home equity loans

Personal loanHome equity loan
Collateral requiredNone, if unsecuredYour home
Interest rateGenerally 4% to 36.00%Generally 3% to 8%
Repayment periodUsually 1-10 yearsUsually 10-30 years
Maximum loan amountCan be up to $35,000, sometimes higher amounts up to $100,000Up to 65% of your home’s value (Your mortgage + HELOC cannot be more than 80% of your home’s value.)

Which is better for you, a personal loan or a home equity loan?

Both home equity loans and personal loans offer specific benefits, as well as drawbacks.


Personal loan pros

  • Useful if you don’t have any assets to guarantee a loan.
  • Generally offer shorter loan terms, making the total loan cost cheaper.

Personal loan cons

  • Interest rates are usually higher than those offered for home equity loans.
  • There will likely be associated fees.

Home equity loan pros

  • Useful when you have a decent amount of equity in your home.
  • Typically offer lower interest rates than personal loans.

Home equity loan cons

  • Will usually cost more than a personal loan since the loan term is much longer.
  • There will be associated fees.

4 questions to ask when choosing a loan

Making a financial decision can be tough when you have plenty of options and little guidance. Consider asking yourself these questions when deciding on the right loan for your needs:

Monthly payment vs repayment period

family need cashConsider that you’re 5 years into your 30-year mortgage and you need a loan of $20,000.

A secured personal loan has an interest rate of 8.90% while a home equity loan has a rate of 6.39%. Your monthly mortgage payments will increase by $150 if you take on the home equity loan, which is less expensive than the $321 payment for the personal loan.

However, over the life of your mortgage, you’ll pay more in interest on the home equity loan than you would on the personal loan. Even though the interest rate is higher on the personal loan, it will still be cheaper in the long run.

The decision rests in whether you want lower monthly payments or a less expensive loan.

* This is a fictional, but realistic, example.

Consider the interest when comparing personal loans and home equity loans

  • It’s worth noting that the longer you carry your debt, the more you pay in interest. That’s why choosing a loan with the shortest repayment term you can afford usually saves you money in the long run.
  • Borrowing against your home’s equity too frequently could be costly. Carefully examine the terms to see if a personal loan with a shorter repayment period might work better for you.

Frequently asked questions

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