1. What is a Home Equity Credit?

A home equity line of credit (HELOC) is a loan that uses your home's equity as collateral. In Canada, it's a popular way to access funds for renovations, debt consolidation, or other major expenses while typically offering lower interest rates than unsecured loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment ($)
• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (years × 12)

Explanation: This formula calculates the fixed monthly payment required to fully repay the loan over its term, including both principal and interest.

3. Importance of Payment Calculation

Details: Understanding your potential monthly payments helps in budgeting and ensures you can comfortably afford the loan payments without straining your finances.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (without the % sign), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between HELOC and home equity loan?
A: A HELOC is a revolving credit line with variable rates, while a home equity loan provides a lump sum with fixed rates. This calculator models fixed-rate loans.

Q2: What are typical interest rates in Canada?
A: Rates vary but are typically prime + 0.5% to 3%. As of 2023, this ranges from about 6% to 9% annually.

Q3: Are there additional costs?
A: There may be appraisal fees, legal fees, and potential early repayment penalties depending on your lender.

Q4: How does amortization work?
A: Early payments are mostly interest; over time more goes to principal. This calculator shows the fixed payment throughout the term.

Q5: What's the maximum equity I can borrow?
A: Most lenders allow up to 65-80% of your home's appraised value minus any outstanding mortgage balance.