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Calculate Home Equity Loan Rates

Jon Kamin

07 Apr 2020 Home Equity Loans

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What Is a Home Equity Loan?

‘Home equity loan’ is a broad term used to describe any loan or mortgage that leverages the borrowers home equity (amount a homeowner has paid off or owns of their house) as collateral. In Canada, home equity loan formats include but are not limited to the following:

How Is Home Equity Calculated?

To calculate home equity, you’ll need to have an idea of the current market value of your home. For research purposes this can be an estimate based off neighbourhood comparables, while lenders will generally require a professional appraisal to be completed. Secondly, you’ll need to provide any remaining mortgage amounts on the property.

You can easily calculate your home equity by calculating the difference between what is currently owed on your home and the current market value of your home.

For example, if your home’s value is $500,000 and your remaining mortgage is $100,000 your equity would be $400,000.

How Much Can I Borrow?

Borrowing capacity for a home equity loan will largely depend on the value of your home. Primary Canadian lenders, such as major banks, will generally provide financing up to 80% of the loan to the value of the home. Should you require more than 80% loan-to-value (LTV), Canadian private lenders may provide financing up to 90% LTV.

Loan-to-value can be calculated by dividing the amount needed for your mortgage by the appraised value of your property.

LTV = Mortgage Amount / Appraised Property Value

What Will My Home Equity Loan Interest Rate Be?

Home equity loan interest rates will vary depending on several personal variables.

  • Credit score – this is a primary indicator of a borrower’s financial history and habits. Lenders use this to determine how likely a borrower may be to default on home equity loan payments. A higher credit score will generally be rewarded with a better interest rate as history indicates there’s less associated risks.
  • Existing mortgages – If existing mortgage(s) have not been paid off in full, lenders providing home equity loans will be in second position on a property’s title. This introduces risk should the borrower default on payments. The first lender will always be prioritized, with subsequent lenders potentially failing to receive appropriate payout. Lenders will therefore take this into consideration when determining interest rates for a home equity loan.
  • Loan-to-value – LTV is another primary indicator of risk for lenders. The higher the loan in comparison to the value of the property, the higher the risk is for lenders. Borrowers can therefore expect interest rates to inflate if loan-to-value is above 80%.
  • Home location & value – While home value will directly contribute to LTV, location is also main component of a property’s value. Interest rates will vary depending on where a house is located and the neighbouring real estate market.

Calculating Home Equity Loan Rate

The Rateco home equity loan calculator provides Canadian borrowers an instant online home equity loan rate. Simply enter the following information and calculate!

  • Loan amount
  • Postal code
  • Home value
  • Credit score estimate
  • Any existing mortgage amounts

Calculate Your Rate Now!