HELOC (Home Equity Line of Credit)

How a HELOC works

A HELOC works like a credit card with a much lower rate and your house as collateral. Your lender approves a credit limit based on the equity in your home. Within that limit you can draw money whenever you want, by online transfer, cheque, or debit, pay it back on your own schedule, and borrow it again. You pay interest only on the balance you actually owe, not on the full limit, so an unused HELOC costs nothing to keep open.

The rate is variable: your lender's prime rate plus a spread, commonly prime plus 0.5 to prime plus 1 percentage point (as of July 2026). When prime moves, your HELOC rate moves within days, just as it does on a variable-rate mortgage.

The minimum payment is usually interest only. That keeps the required payment small, but it also means the balance never shrinks on its own. Paying down principal is entirely up to you.

How much you can borrow

Federally regulated lenders face two caps (as of July 2026): a standalone HELOC cannot exceed 65% of your home's value, and your HELOC and mortgage combined cannot exceed 80%. On an $800,000 home with a $500,000 mortgage, the combined cap is $640,000, which leaves up to $140,000 of HELOC room.

You also have to qualify. HELOC applications go through the same stress test as mortgages: the lender checks that you could handle the payments at a rate higher than the one you will actually pay, and reviews your income, debt-service ratios, and credit score. Because the stress test assumes you could draw the full limit, a large HELOC can be surprisingly hard to qualify for.

Readvanceable mortgages

Most big-bank HELOCs are sold as part of a readvanceable mortgage: a single product that combines a regular mortgage portion with a HELOC portion under one overall limit. As you pay down mortgage principal, your available HELOC room grows automatically by the same amount. Every big bank offers a flagship version of this product under its own name.

Readvanceable products are convenient, but they are registered as a collateral charge on your home, often for more than the amount you borrow. That makes it harder to switch lenders at renewal, because moving requires a full refinance with legal fees rather than a simple transfer.

What Canadians use HELOCs for

Because the money is cheap to access and flexible to repay, HELOCs show up everywhere in Canadian household finance. Common uses include:

• Renovations, where costs arrive in unpredictable stages and a lump-sum loan fits poorly.
• Bridge financing when you buy a new home before the sale of your current one closes.
• A standby emergency fund, opened in advance and left at a zero balance.
• Consolidating higher-interest debt such as credit card balances.
• Investing outside registered accounts.

Borrowing to invest: handle with care

One use deserves its own careful note. When you borrow to buy income-producing investments in a non-registered account, the interest is generally tax deductible. The deduction does not apply to money used for TFSA or RRSP contributions, renovations, or personal spending, and the CRA traces what each borrowed dollar was used for, so keep the invested money in a separate account with clean records. Québec residents can deduct the interest too, but Québec applies its own rules: provincially, the deduction in a given year is generally limited to your investment income for that year, with the excess carried to other years. Remember that leverage magnifies losses as well as gains; a deductible loss is still a loss.

The risks

A HELOC is one of the cheapest ways for a homeowner to borrow, and also one of the easiest products to misuse. Four risks stand out:

• Variable-rate exposure. Your rate rises every time prime does, with no cap. A large balance that felt cheap can become expensive within a few announcement dates.
• The interest-only trap. Because the minimum payment covers interest only, you can pay for years and still owe every dollar you borrowed.
• The lender can freeze or reduce your limit. A HELOC is demand credit. If your home's value falls or your finances deteriorate, the lender can cut the limit or freeze new draws, sometimes exactly when you were counting on the money.
• Easy-access temptation. Equity that took a decade to build can be spent with a few taps. Steady small draws that are never repaid are the most common way HELOCs go wrong.

HELOC vs. refinancing vs. second mortgage

A HELOC is one of three main ways to tap home equity, and the right one depends on how much you need and how you want to repay it. Note that a mid-term refinance can trigger a prepayment penalty on your existing mortgage.