Heloc Calculator Canada: How Much Can You Borrow?
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Borrow against the equity in your home
Compare HELOCs
How does our HELOC calculator work?
Our HELOC calculator lets you determine how much you can borrow with a HELOC. Canada has specific rules about how much you can borrow using your home equity, so it is easy to calculate the max borrowing amount.
- First, you will need the current estimated value of your home. You can use an online home value estimation tool to find this number or compare your property with recently sold homes in your neighbourhood. If you are unsure, try using the purchase price of your home. Even if the market value has increased since you made your home purchase, it can still provide a valuable baseline.
- Enter the remaining balance on your mortgage. You can get this information through the mortgage lender's online portal or by reviewing your most recent statement.
Just input those figures into the HELOC calculator. It will give you back two numbers:
- The first is your estimated borrowing capacity.
- The second is your loan-to-value ratio.
Are you ready to explore HELOCs? You can read more about them and compare the best HELOC rates now.
Borrow against the equity in your home
Compare HELOCs
What is a home equity line of credit?
HELOC stands for home equity line of credit. Essentially, it is a revolving line of credit that uses the equity in your home as collateral.
HELOCs can be a good option for those who need to borrow a lot of money at a low-interest rate. You will owe far less interest than using a credit card or personal loan. Using your home to secure the HELOC offers the lender great certainty that you’ll pay back your debt, and a valuable asset should you default.
How do you calculate a HELOC limit?
Borrowers can access up to 65% of their home's value with a home equity line of credit.
Let us assume that your home is 100% paid off and worth $500,000. In this case, you could be eligible for a HELOC of up to $325,000.
Good to know
$500,000 home value × 65% = $325,000 HELOC
The rules change a little if you are still paying off your mortgage. In this case, your mortgage and HELOC’s combined value may not exceed 80% of the property value. This is known as the Cumulative Loan to Value.
Let’s compare two different situations:
| Who | Home Value | Outstanding Balance | LTV ratio | Eligible? | How much? |
|---|---|---|---|---|---|
| Lender A | $350,000 | $300,000 | 85.7% | $0 | |
| Lender B | $350,000 | $50,000 | 14.3% | $230,000 |
Lender A, even without a HELOC, is already over the 80% LTV ratio and is likely ineligible for a HELOC.
Lender B, on the other hand, could be eligible for up to $230,000. We calculate this amount by taking the $350,000 market value by 80% to get $280,000. Then we deduct the outstanding $50,000 mortgage balance to give us $230,000.
How do I get a HELOC?
To successfully apply for a HELOC Canadian borrowers are required to meet a few qualifications.
Here is what a lender is looking for in a borrower HELOC:
| Criteria | About |
|---|---|
| Home equity | How much of the home is already paid off? This will determine if and how much a borrower can get. At least 20% of the home much be paid off to qualify. |
| Credit score | The higher, the better. Borrowers should expect to need at least a credit score of 620. |
| Proof of income | Lenders want to see an ability to pay back the line of credit |
| Debt-to-income ratio | A sufficiently low debt-to income ratio is required. Standards change between lenders, but under 40% is a good baseline. |
Ultimately, how much equity is available on your home is the key criterion for a HELOC. It determines borrowing capacity. But lenders weigh the other factors too to know if a borrower is in a good position to repay the debt.
The easiest way to get a HELOC in Canada is to compare online HELOC rates.
How to calculate your home equity?
It is easy to calculate your home equity. Just take the current value of your home and subtract how much you still own on it.
Good to know
Home equity = value of home - outstanding mortgage
Let us consider an example.
For example
For example, Philip and Roberta have a single-family home in Hamilton, Ontario. It is valued a $1,000,000. They have been dutifully paying off their mortgage balance for 15 years and only owe another $150,000. Not only that, but the property has appreciated in value. They have $850,000 of home equity.
How are HELOC payments calculated?
HELOC payments differ depending on whether you are in the draw period or repayment period.
Calculating HELOC payments during the draw period
During the draw period, a borrower is only responsible for covering interest payments of the amount that use.
Good to know
HELOC interest calculation:
Balance * (interest/12 months) - minimum interest-only payment
Here is an example of how this is calculated:
For example
Philomena has a $25,000 HELOC balance with a 6% interest rate. Her minimum possible payment is $125 per month. Just as with a credit card, paying more will help her to pay down the current balance. If she were to reimburse $250 per month instead, double the minimum, she could reduce her balance to $23,458.05 instead of $25,000 after one year.
Expert advice
Remember: Paying the minimum does not reduce your balance. Pay as much as you can comfortably manage will reduce how much interest you pay in the long term.
Calculating HELOC payments during repayment period:
During the repayment period, borrowers are on the hook for repaying their balance and interest. This period is set to a specific term. The conditions should be explained when getting a HELOC. The term may be for 5, 10 or more years. During this period, the line of credit is closed.
Repayment works like a typical loan. Payments are calculated based on the balance, months in the term and the interest rate.
What is a good HELOC rate?
A great HELOC rate is 0.5% or 1% over the prime rate. Interest rates on HELOCs are among the cheapest ways of borrowing money. The rates can be so low because they are backed by a valuable asset, your home.
HELOC interest rates use a variable rate based on a lender’s prime rate. You may pay as little as 0.5% or 1% over the going prime rate. In short, what you sign up for today, may not be what you expect when you repay later. Here is how the prime rate evolved in Canada in 2022.
| Date | Prime rate |
|---|---|
| November 23, 2022 | 5.95% |
| October 26, 2022 | 5.45% |
| September 28, 2022 | 5.45% |
| September 21, 2022 | 5.45% |
| September 14, 2022 | 5.45% |
| September 07, 2022 | 4.70% |
| August 31, 2022 | 4.70% |
| July 20, 2022 | 4.70% |
| June 08, 2022 | 3.70% |
| June 01, 2022 | 3.20% |
| March 09, 2022 | 2.70% |
| January 05, 2022 | 2.45% |
2022 was a volatile year for interest rates, but it illustrates a good point. In January 2022, a borrower may have paid as little as 2.95% interest (prime + 0.5%). By December, that same borrower could be paying 6.45% interest.
It is worth noting that this number is exceptional. Between late 2008 and the beginning of 2022, the prime was always between 2.5% and 4%.
For lenders, home equity lines of credit are riskier than mortgages. Because they see a higher risk of default, the interest rates are higher than with a mortgage. Still, when we look at HELOCs vs personal loans or credit cards, HELOCs come out ahead with much lower interest rates. A HELOC can make a lot of sense for the right borrower.
Want to compare the best going HELOC rates now?
Borrow against the equity in your home
Compare HELOCs
What is a loan-to-value ratio?
The loan-to-value ratio is commonly abbreviated as LTV ratio. Simply, the LTV ratio is a numerical expression of how much a mortgage, loan or HELOC represents of the home’s total value. It is represented as a percentage. If you have both an outstanding mortgage and a HELOC or second mortgage, you’ll need to add them up to get the Cumulative Loan to Value Ratio.
What are the alternatives to a HELOC?
HELOCs aren’t the only solution for tapping into your home equity. Here are some other methods:
- Home equity loans: They can mean accessing more of the value of your home equity (up to 80%). Borrowers get an exact lump sum upfront and begin reimbursing interest + principal immediately.
- Refinance: refinancing a mortgage replaces your existing mortgage. You can access up to 80% of the current value of your home. If you still carry a balance, the 80% covers must first cover that balance before you are able to tap into the sum. Note that this resets everything: your balance, years remaining, contract and more.
- Sell: Selling your home is the most extreme way of accessing your home equity. In most cases, this won’t make sense, but it could be an option for someone looking to downsize or move to a less expensive area.
Finally, if you are uncomfortable with using the equity in your home to secure a line of credit, there are many other ways of borrowing. The most common are:
- Credit cards
- Personal loans
- Personal lines of credit
