Compare personal loans vs. mortgages

Should you opt for a mortgage or a personal loan? Find out what makes a difference when you’re buying a home.

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Buying a house is a huge financial decision. When you’re ready to get pre-approved, you might start to wonder whether you should look past a traditional mortgage to alternative home financing, like taking out a personal loan. While sorting through mortgages and personal loans may not be an enjoyable or easy task, it’s crucial when you want to buy a home and get the most favourable terms possible.

Mogo Personal Loan

Mogo Personal Loan

From

5.9 % APR

rate

  • Borrow from $2,000
  • Simple online application
  • Free credit score upon account creation

Mogo Personal Loan

Apply today to get approved for a personal loan up to $35,000 on flexible terms.

  • Max. loan amount: $35,000
  • Loan term: 1-5 years
  • Turnaround time: Same day
  • APR: 5.90% - 46.96%
  • Fees: NSF fee - $20 to $50
  • Quick pre-approval
  • Automatic payments
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How do personal loans differ from mortgages?

Mortgages are specialized lending for real estate. When you take out a mortgage, you’re taking out a secured loan that uses the property you’re buying as collateral. The most common type of mortgage in Canada is a fixed-rate mortgage amortized over 25- years – however you can amortize your mortgage anywhere from 5- to 35- years, depending on your situation. You’ll also come across variable rate mortgages, convertible mortgages and hybrid mortgages, but these types of mortgages are more complex and could lead to financial trouble if you’re not careful.

An alternative financing tool to purchase your home is a personal loan. You’ll generally need good or excellent credit for a personal loan, but you’ll find lenders that specialize in loans for those with less-than-perfect credit.

Personal loans are generally unsecured. This means you won’t have to put up any collateral. The result is that you pay more in interest and have a shorter term, generally less than 10 years. Personal loans aren’t usually intended to fund a home purchase, but that doesn’t mean you can’t do it. As long as your lender agrees to your loan purpose, you can use one for almost any legitimate reason.

Compare personal loans from top online lenders

Name Product Interest Rate Max. Loan Amount Loan Term Fees Min. Credit Score
Fairstone Personal Loan (Unsecured)
26.99% - 39.99%
$20,000
6 months - 5 years
None
N/A
Fairstone offers unsecured personal loans up to $20,000
Mogo Personal Loan
5.90% - 46.96%
$35,000
1-5 years
NSF fee - $20 to $50
540
Mogo offers loans up to $35,000 on flexible terms.
Ferratum Personal Loan
18.90% - 54.90%
$15,000
6 months - 5 years
None
550
An established online lender with loans up to $15,000. Now accepting applicants on El and Social Assistance.
Cash Money Installment Loan
46.93%
$10,000
6 months - 5 years
Vary across provinces/territories
N/A
Cash Money offers installment loans up to $10,000 for AB, MB and NB residents.
LendDirect Personal Loan
19.99% - 46.93%
$15,000
No end dates
None
N/A
Borrow up to $15,000, based on your income and credit history, with a personal line of credit from LendDirect.
ConsumerCapital Personal Loan
19.99% - 34.99%
$12,500
12 months - 5 years
None
N/A
Online lender offering personal loans from $500 up to $12,500.
LendingMate Personal Loan
43% (British Columbia and Ontario) and 34.90% (Quebec)
$10,000
1-5 years
None
N/A
LendingMate offers loans to Canadians with poor credit with no credit checks. Guarantor required for application.
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$35,000
3-10 years
Varies by province
N/A
Fairstone offers secured personal loans up to $35,000.
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Compare up to 4 providers

*The products compared on this page are chosen from a range of offers available to us and are not representative of all the products available in the market. There is no perfect order or perfect ranking system for the products we list on our Site, so we provide you with the functionality to self-select, re-order and compare products. The initial display order is influenced by a range of factors including conversion rates, product costs and commercial arrangements, so please don't interpret the listing order as an endorsement or recommendation from us. We're happy to provide you with the tools you need to make better decisions, but we'd like you to make your own decisions and compare and assess products based on your own preferences, circumstances and needs.

Main differences between personal loans and mortgages

Personal loanMortgage
Interest rateVaries by lender, usually between 4% to 36%Varies by lender, but can start as low as 2.5%.
Maximum loan amountUp to $100,000, depending on the lender and your eligibilityDepends on income, credit score, value of home and other factors
Loan termTypically between 1 to 7 yearsTypically 5- to 30- years, but can be up to 35- years
Repayment frequencyUsually monthly repaymentsUsually monthly repayments, but can be weekly or bi-weekly too

What are the benefits of personal loans and mortgages?

Personal loans

  • No tax implications. You won’t be charged income tax on the amount you borrow.
  • No down payment needed. Unlike mortgages, many lenders don’t require you to provide any cash up front in order to qualify for a personal loan.
  • Negotiate repayments. You may be able to negotiate your repayments if you’re facing financial hardship or an emergency.

Mortgages

  • Secured. Since the loan is secured with your property, lenders are more likely to offer a much lower APR than an unsecured personal loan.
  • Pre-approval. You can get pre-approved and go house shopping with a clear picture of what you’ll be paying every month.
  • Tax advantages. Doing renovations or renting out an investment property can come with tax advantages and incentives.

What are the drawbacks of personal loans and mortgages?

Personal loans

  • Short repayment terms. Most lenders have repayment terms lasting one to seven years.
  • Interest rates. Since you’re not providing collateral, you’ll likely have a higher interest rate and will need to pay more in interest over the life of your loan.
  • Small loan amounts. You’ll only be able to borrow up to $50,000 or $100,000 if you have impeccable credit. Otherwise, your funding will be limited to $35,000 or less.

Mortgages

  • Foreclosure. If you fail to make repayments and default on your mortgage, you could lose your home in foreclosure.
  • Amount paid. Despite low interest rates, mortgage loan amounts tend to be very large and have long repayment periods of up to 35- years. This means that by the end of your repayment period, you’ll likely have paid tens of thousands of dollars in interest alone.
  • Payment fluctuations. With a variable rate mortgage, the payments you make can fluctuate drastically with the market.

Which borrowing option is better suited for me?

The better option will depend on your needs as a borrower. Mortgages are by far the most common option because they’re meant for real estate. Fixed-rates make for an easy repayment plan, even if it doesn’t have as attractive an initial interest rate as a variable rate mortgage. If rates drop significantly, you can take steps to refinance a fixed-rate mortgage to a variable rate, which could potentially lower your monthly payment if the prime rate stays low.

In addition, buying a home outright on $100,000 or less is nearly impossible in most parts of Canada these days. Some lenders will allow you to use a personal loan as a down payment, but otherwise, you’ll have a hard time covering the costs of a purchase. However, if you’re looking to fill that new home with some furniture, a personal loan is an option to consider. Personal loans can be used for many purposes, which make them useful when it comes to home improvements or other big purchases.

What’s the difference between a personal loan and remortgaging?

You might have come across the term remortgaging in your research. Remortgaging is another term for refinancing. When you remortgage or refinance your mortgage, you pay off your current mortgage with a second mortgage through a new lender, usually one offering a lower interest rate or better terms.

Bottom line

Personal loans can be good for a wide variety of things, but they’re not necessarily the best for funding the purchase of a home. Mortgages are exclusively used for purchasing real estate and can generally offer you much better terms and a lower interest rate. Before you make any big financial commitments, you should talk with a financial adviser and compare your options. Whichever you choose, have your finances in order and understand the full impact of each type of loan when you apply.

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