A home equity line of credit (or HELOC) is a popular, low-cost, flexible borrowing option. Did you know over three million Canadians have one? A HELOC allows you to tap into your home’s equity to pay for ongoing expenses like renovations, cover unexpected emergency costs or consolidate high interest debt.
HELOCs often offer some of the lowest interest rates for loans, second only to conventional mortgages. They’re also very flexible; you have a set amount you can borrow from and you can pay back the money you owe at any time, so long as you make interest payments every month.
A HELOC calculator is a useful tool for knowing how much you can borrow and the amount your monthly payments would be.
How does a HELOC calculator in Canada work?
The borrowing rules for a HELOC are a little different in Canada than some other countries, so when looking for a HELOC payment calculator, try and find one on a Canadian website.
Typically, with a home equity line of credit calculator, you are looking for two things: how much you can borrow and what your monthly payments will be. The HELOC repayment calculator will help you to work out if you can afford the payments.
Using a HELOC calculator in Canada to work out how much you can borrow
The way a home equity line of credit calculator computes the amount you could borrow is fairly simple. First, just enter into the HELOC calculator the amount of money that you think your home is worth.
Next, enter the outstanding balance on your mortgage (if you have one), plus other liens on the property. Finally, tap into the HELOC calculator the maximum loan to value (LTV) that your lender will allow.
The LTV is the maximum amount, in a percentage, that your financial institution will allow you to borrow, compared to your home’s value. Most will lend up to 80% of your home’s value (minus what you already owe on your mortgage), but some will lend less. Your HELOC calculator will then give you a figure that is the highest amount that you could borrow.
Some examples of what you could borrow, as per HELOC calculators for Canada
|Home’s value||Amount owed on mortgage||Maximum LTV||Amount available to borrow*|
*These figures are hypothetical maximums that a financial institution might lend. The actual amount will depend on your income and credit score.
Using a home equity line of credit payment calculator
Once you know how much you could borrow, it’s also important to know how much your monthly payments will be. This is helpful in working out if you can afford to make those payments, as well as how much you could save by transferring high-interest debt to a HELOC.
A HELOC repayment calculator only works out the minimum monthly payment required, which is the interest. A HELOC is revolving credit, so you can pay back the principal at any time, with no penalty.
Some examples of monthly interest payments, as per HELOC payment calculators
|Amount borrowed||Monthly interest payment (at 4.45%**)|
An internet search of the term “HELOC calculator Canada” or “home equity line of credit calculator” will bring up links to calculators that you can use. This simple HELOC calculator works out how much you could borrow. This HELOC repayment calculator works out your monthly interest payments.
Paying back your HELOC
There are a number of ways to pay off the balance of your HELOC. You could simply make monthly payments that include principal as well as interest. This calculator will help you work out how much you would need to pay, over what period of time. Alternatively, you could transfer the HELOC into a home equity loan and pay it off over a stipulated amount of time, but interest rates could be higher than what you’re currently paying.
Alternatively, you could refinance your mortgage and pay off the HELOC with the proceeds. This would typically be the cheapest way to do it, as mortgages usually offer the lowest interest rates.
Not sure if a HELOC is right for you? Check out these resources to learn more:
A low-cost alternative to a HELOC
If, after using a home equity line of credit calculator, you realize that even interest payments would put a big dent in your monthly income, there is a better alternative.
If you’re aged 55+ and own your own home, you could borrow up to 55% of your home’s value with the CHIP Reverse Mortgage®.
Because you don’t have to make any payments until you decide to sell, this would allow you to tap into your equity without adversely affecting your monthly income. This is also a good alternative for people who can’t qualify for a HELOC because of their income or credit score.
** The 4.45% interest rate is a typical HELOC rate at the time of writing.