We have already talked at great length on this blog about how to obtain a home equity line of credit by going to a Toronto mortgage broker and letting them do all the comparisons of different lenders and different rates for you. However, there’s a major step that comes after the application process – and that’s paying it back. HELOCs work on a variable rate, meaning that the amount of interest you pay will be different from month to month. This can make the repayment period somewhat confusing, leaving many homeowners wondering how they’re ever going to pay off their HELOC, if they don’t even know how much they owe.
What you first need to do is find the principal balance on your loan – even if you’re currently making interest-only payments. The principal should be on your mortgage statement; if not, call your lender to obtain the dollar amount. This principal isn’t only important because it too needs to be repaid at some point, but because how much of that principal you have already borrowed will greatly determine how much interest you now owe.
Next you must calculate the interest – and this is where many homeowners think it becomes tricky. The fact that the interest rate is variable and so, changes all the time, is what trips most homeowners up and leave them thinking that there’s no way they can figure out when they paid 5 per cent, when they paid 7 per cent, and when they paid 10 per cent. But this interest doesn’t change that often (in Canada, the rate hasn’t changed for almost two years,) and so it will be the same for many different periods of time. Aside from that, homeowners must pay the interest every month so unlike what many homeowners think, they don’t need to figure out the interest accrued from a year ago, apply it to the principal, and then figure out the amount of interest due now and then also add that to the loan. If you’ve been making your HELOC payments (and the chances are good that if you haven’t, the lender has taken away your HELOC,) you only need to figure out what the interest is for that month.
Then it’s just calculating how much interest you owe, based on the amount of principal you still have left on the loan. If you’ve withdrawn more from the HELOC recently, you’ll need to pay more interest; whereas if you’ve paid off some of the principal, you’ll have less.
Then it’s really just a matter of adding together the amount of interest you’ve accrued this month to the amount of principal left on your loan. And, if you’re only trying to determine how much you have to pay in one month for the HELOC, you won’t even have to add it to the principal – but you will still need to know what the amount on it is so you can apply the interest to it.
When you want to figure out the amount of you owe on your HELOC, it does take a bit of deducing – but it’s not difficult. If you need help, you can always speak to a mortgage broker or find one of the very useful online HELOC calculators and allow those to do all of the work for you.
