Canadian HELOC Interest Rates (variable or fixed)

Canadian HELOC (home equity line of credit) loans have become extremely popular as more and more home owners owe less to the banks on their mortgages. The interest rates on HELOCs vary of course depending on the current Bank of Canada interest rates, and we’ll be going into some detail as to what your options are. We at Zulit.com don’t finance people – we report information only in our format.

Canadian HELOC Advantages

Most Canadian banks, such as BMO (Bank of Montreal), Royal Bank, TD Canada Trust, and CIBC (Canadian Imperial Bank of Commerce) all base their HELOC rates around prime. The main advantage with a HELOC, as compared to a mortgage, is flexibility. You can borrow from your HELOC at any time, and you pay down as much as you want at any time.

At the time of this writing a conventional HELOC gives you instant access to 80% of the equity in your house or home. You can also have instant access to up to 90% of the appraised value or purchase price (whichever is lower) of your home. Of course you have to qualify.

Servicing Debt on a Canadian HELOC

Most of the above mentioned Canadian banks have similar debt servicing requirements. The average HELOC repayment requirement is 3% or $50 per month – whichever is higher. For example; a home owner in Canada that owes $20,000 on their HELOC must pay the bank approximately $50-$100 per month depending on the interest rate they have.

Canadian Fixed Rate HELOC

For those Canadians who want the security of a fixed rate HELOC, they can lock in at any time. If the prime rate at the Bank of Canada drops significantly it may be wise to lock in.
The BMO (Bank of Montreal), Royal Bank, TD Canada Trust, and CIBC (Canadian Imperial Bank of Commerce) usually have HELOC fixed rate calculators on their web sites. For instant, click here to use the TD Canada Trust fixed rate HELOC calculator.

You also have the option of locking in just a portion of your home HELOC. You can lock in say $10,000 of a $20,000 HELOC at a fixed 1 to 5 year mortgage interest rate with fixed payments. Clear as mud? It’s really very simple.

Canadian Variable Rate HELOC

With a variable interest rate HELOC you can take advantage of drops in prime, but of course, a HELOC can put you at risk when the prime rises dramatically. Since the dreadful rise in prime during the early to mid 1980s, the Bank of Canada and the United States Federal Reserve rates have luckily been kept down. Inflation has been kept under control for the most part. Therefore, HELOC variable interest rates have been a good option. Where it goes nobody knows, and if I did, I’d be a very wealthy man.

Fixed Rate HELOC vs a Variable Rate HELOC in Canada

Whether you choose to lock in a portion, the full amount, or none of your HELOC is completely up to you, and is a decision that should be based on many different factors. If you have a limited income as an employee, and only a scant few assets, you may want to lock in for 5 years just to be safe. If you’re self-employed, and you don’t have a limited income, you may want to leave the HELOC rate wide open.

For example; A small business owner living in Ontario, Quebec, Alberta, British Columbia (B.C.), Saskatchewan, or Manitoba, who has a HELOC for $60,000 may want to let it ride open with a variable interest rate, as he or she can increase their income anytime they feel like ramping things up. They can take advantage of the current prime rate, and pay allot less interest while they grow their business. If the small business owner(s) can increase their profits at a whim, then they don’t need to fear prime interest rate fluctuations as much. It’s always a concern to some degree, but looking at the last couple of decades, the Bank of Canada and the United States Federal Reserve don’t want to let the rates climb up up and away. Inflation is the enemy of any modern country, measures will always be taken to avoid another runaway inflation problem.

Canadian HELOC Health and Life Insurance

It’s a good idea to purchase HELOC insurance in the case of a “rainy day”. You never know when you might be unable to earn due to some sort of ”problem”. Here is another example from a Canadian bank (name withheld):

“Line of Credit (HELOC) Critical Illness and Life Insurance can pay your balance, up to $300,000, in the event of death, an accident, or covered critical illness. If your balance is greater than 110% of its average for the past 12 months, any benefit payable may be subject to limitations. There are also exclusions that could apply.”

Keep a close eye on the last sentence of this quote. You MUST read all the fine print of your HELOC insurance policy. Make sure you don’t leave your family in the red in case of death or accidental dismemberment.

Advantages of a Canadian HELOC (home equity line of credit)

The major banks in Canada are very competitive, and they’re forced to keep up with each other. This means that they have to make your HELOC as flexible as possible. Below are some bullet points of flexibility that most major Canadian banks offer on the home equity lines of credit:

the ability to transfer funds from your HELOC using telephone banking or internet banking.
the ability to make cash withdrawals at any of your bank’s instant teller machines
the ability to write a HELOC cheque
the ability to add your HELOC to your personal checking or saving account and access your line of credit funds with your debit card. This means you have a large egg of cash at your fingertips for buying essentials like food, fuel, etc, etc.

Why Canadians are Choosing a HELOC over a Mortgage

Canadians a choosing a HELOC over a standard mortgage more and more. The reason being that you can pay down your debt without a penalty normally incurred when paying down a large chunk of a mortgage.
Canadians can use their HELOC for running their small businesses, and the number of small business starts up increase in Canada every year.
Canadians with a HELOC can enjoy the security of knowing they always have some “rainy-day funds” anytime they’re stuck behind the eight ball.
Canadians can use their HELOC to buy more real estate for the purpose of flipping houses, or the purpose of having rental properties.

In Conclusion

HELOC options and flexibility will be popular in Canada as long as the prime rate is under control, and reasonably low. If inflation goes on a runaway, and mortgages climb higher, home owners will be forced to have the new 40 year mortgages just make ends meet. I won’t go into my predictions on the World markets, the United States economy, or the Canadian economy. I’m not a financial expert, and I think the term “financial expert” is a redundant term. We’re all living in “the big casino” of life, and we’re all going for the ride.

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