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Home equity loans are a popular borrowing option for Canadian homeowners, particularly those looking to leverage the equity in their homes for financial needs such as renovations, debt consolidation, or major purchases. Understanding the monthly payments on a home equity loan is critical for planning and budgeting. This article explains how monthly payments are calculated, provides updated calculations based on Canadian interest rules, and answers frequently asked questions.

Home Equity Loan Loan-to-Value Calculation

A home equity loan is a type of secured loan that allows homeowners to borrow a lump sum based on the equity in their property. Equity is calculated as the difference between the home’s current market value and the outstanding mortgage balance. For example, if your home is worth $500,000 and your mortgage balance is $300,000, your equity is $200,000.

In Canada, most lenders allow borrowing up to 80% of the home’s value, minus the existing mortgage balance. Loan terms, including interest rates, repayment periods, and monthly payments, depend on factors such as credit score, lender policies, and current market conditions.

Factors Determining Home Equity Loan Payments

Interest Rate: Lower loan-to-value ratios will generally lead to lower interest rates and interest payments

Loan Amount: Larger loans result in higher payments.

Amortization: Interest-only repayment structures generally result in lower payments

Monthly Payment Calculation for a Home Equity Loan

Home equity loan payment calculations for a $50,000 home equity loan at 9% based on interest-only and amortized repayment:

Home Equity Loan Interest-Only Payment Calculation

Interest-only monthly payment = Loan amount * Monthly interest rate

Interest-only monthly payment = $50,000 * (0.09/12) = $375

Home Equity Loan Amortized Payment Calculation (25-year amortization)

Using the formula below, where M = monthly payment, P = loan amount, r = effective monthly interest rate (0.007362), n = total number of payments (12 * 25 = 300):

($50,000) * 0.007362 / 1 - 1+0.007362)^-300 = 368.1 / 0.8892533175389609 = $414 approx.

Monthly Payment on a $100,000 Home Equity Loan

Interest-only monthly payment on a $100,000 home equity loan at 9% = loan amount * monthly interest rate = $100,000 * (0.09/12) = $750.

Monthly Payment on a $200,000 Home Equity Loan

Interest-only monthly payment on a $200,000 home equity loan at 11% = loan amount * monthly interest rate = $200,000 * (0.11/12) = $1,833.33.

Home Equity Loan Monthly Payment Calculators

For simplicity, you can use our home equity loan calculators to estimate your monthly payments, based on a loan amount of your choice and a pre-determined list of interest rates.

How to Calculate Your Available Home Equity

The calculation for your available equity is very simple:

Available Equity = Current home value - Outstanding mortgage balance.

For example, if your home is worth $800,000 with a $350,000 mortgage, your available equity = $800,000 - $350,000 = $450,000

How to Calculate the Loan-to-Value Ratio

The formula to calculate your loan-to-value ratio: LTV = [ (Existing mortgage + New mortgage) / Property value ] * 100

For example, if you have an existing mortgage of $400,000 and you're looking to borrow $150,000 on a $1M property, your LTV = [ ($400,000 + $150,000) / $1,000,000 ] * 100 = 55%

How Much Can You Borrow With a Home Equity Loan

80% LTV is generally the maximum loan-to-value ratio for most lenders in Canada. This means that you can borrow up to 80% of your property's value, minus any existing mortgages. For example, a borrower with a $1M home and a $500,000 mortgage can borrow up to = ($1,000,000 * 0.8) - $500,000 = $300,000.

Interest Rate for a Home Equity Loan in Ontario

As of January 2025, interest rates for home equity loans behind an existing mortgage (i.e. a second mortgage) range from 8% to 14%. Home equity loan interest rates can vary greatly due to loan-to-value, property location, and creditworthiness.

Calculating Monthly Payment on a Home Equity Loan

Understanding monthly payments on a home equity loan is crucial for making informed financial decisions. By considering factors such as loan amount, interest rates, and payment structure, Canadian homeowners can effectively manage their borrowing and repayment strategies. Always consult with a mortgage professional to explore your options and determine what works best for your unique financial situation.