A HELOC Canada can be a flexible way to access the equity in your home without refinancing your mortgage. In this guide you'll get a clear, Canada-specific explanation of what a home equity line of credit (HELOC) is, how it works, how it compares to a mortgage, and practical steps to decide whether a HELOC suits your financial plan.
What is a HELOC?
Definition: A HELOC (home equity line of credit) is a revolving line of credit secured by the equity in your home. You borrow up to an approved limit, pay interest on amounts you use, and can re-borrow as you repay during the draw period.
Key feature: It behaves like a credit card against your home—flexible borrowing and repayment—but typically with lower rates because it is secured.
How a HELOC works — the basics
Appraisal and credit check: Lenders verify your home value and creditworthiness.
Credit limit set: The lender approves a maximum amount based on your home equity (often up to 65%–80% combined loan-to-value with your mortgage).
Draw period: You can withdraw funds as needed during a set period (commonly 5–25 years).
Repayment: You usually pay interest-only during the draw period, then must repay principal and interest during the amortization period or when the HELOC is renewed.
Variable rate: Most HELOCs use a variable rate tied to the lender's prime rate; payments fluctuate with changes in rates.
How lenders calculate your HELOC limit
Home value: Based on a current appraisal or automated valuation.
Outstanding mortgage balance: Subtracted from the allowable loan-to-value (LTV).
Maximum combined LTV: Many lenders cap combined mortgage + HELOC at 65%–80% of the home's value (varies by lender and property type).
Your income and credit: Affects final approval and interest rate.
Pros and cons — quick checklist
Pros:
Flexible access to cash for renovations, debt consolidation, education, or investing.
Typically lower interest than unsecured lines of credit or credit cards.
Interest may be tax-deductible if the funds are used to earn investment income (see CRA rules).
Cons:
Variable rate risk: payments can rise if prime increases.
Your home is collateral — default can lead to foreclosure.
Temptation to over-borrow against your home equity.
HELOC vs mortgage — how they compare
Purpose
Mortgage: Long-term purchase or refinance of a home.
HELOC: Short- to medium-term flexible borrowing secured by home equity.
Interest rates
Mortgage: Can be fixed or variable; fixed offers rate certainty.
HELOC: Usually variable and tied to prime.
Repayment
Mortgage: Regular principal + interest amortized over decades.
HELOC: Interest-only payments may be allowed during draw period; principal repayment varies.
Cost to set up
Mortgage: Higher closing costs, possible penalty for breaking term.
HELOC: Lower setup fees, though some lenders charge appraisal or legal fees.
Common HELOC uses in Canada
Home renovations: Improve value and living conditions.
Debt consolidation: Replace high-interest credit cards with lower HELOC interest.
Emergency fund or cash flow: Access to funds for unexpected costs.
Investing: Some use HELOC to invest (interest may be deductible if used to earn investment income; check CRA guidance).
Costs and fees to watch for
Interest rate (variable): Often prime + margin; watch for rate changes.
Appraisal fee: Lender may require a home appraisal.
Legal fees: If the HELOC requires registering a new mortgage charge.
Inactivity/maintenance fees: Some lenders charge annual admin fees.
Renewal/limit review fees: Lender may re-evaluate and adjust your limit.
Tax considerations (Canada)
Interest deductibility: Generally, interest is deductible only when borrowed funds are used to earn income (e.g., investments generating taxable income). Personal uses (vacation, consumer purchases) usually make interest non-deductible.
Keep records: Maintain clear proof of how you used HELOC funds and consult the CRA rules or a tax advisor.
Helpful resource: CRA — Carrying charges and interest expenses.
Risks and how to manage them
Interest-rate risk: Choose a plan to manage rising rates (e.g., partial fixed-rate options or converting HELOC balance to a fixed-rate loan).
Overleveraging: Avoid using all equity—retain a buffer for market downturns.
Change in property value: A falling house price could reduce or eliminate available equity.
Job or income loss: Ensure you can make payments during hard times.
How to apply — step-by-step
Check your credit score and finances.
Estimate your home equity: Subtract your mortgage balance from a realistic market value.
Shop lenders: Compare HELOC Canada products, rates, fees and features.
Get an appraisal (if required).
Submit application and documents: ID, income, mortgage details, property info.
Review offer: Check rate, fees, repayment structure, and renewal terms.
Sign and register: Legal registration may be required; funds become available after closing.
Tips for Canadians considering a HELOC
Keep a conservative LTV: Don't borrow to the maximum; leave a margin for market swings.
Consider a blended approach: Use a mix of HELOC and fixed-rate products for stability.
Automate payments: Pay at least more than interest if you can to reduce principal.
Read the fine print: Renewal conditions and variable-rate clauses can materially affect costs.
Talk to a mortgage specialist or financial advisor about how a HELOC fits with RRSP, TFSA, RESP and other goals.
Typical HELOC scenarios — examples
Renovation: Borrow $50,000 for a kitchen remodel; interest-only payments during a 10-year draw, then repay principal over the amortization.
Consolidation: Move $30,000 in credit card debt to a HELOC at prime + 0.5% to lower monthly interest.
Investing: Use HELOC for a taxable investment; consult a tax advisor to confirm interest deductibility and investment risk.
Questions to ask a lender
What is the current variable rate and margin?
Is there an annual or inactivity fee?
Can I lock a portion into a fixed-rate loan?
What is the combined LTV limit?
How often can you redraw and what are the renewal terms?