HELOC in Canada: how a home equity line of credit works, what it costs and who gets one

Reviewed by Michael Squeo, CEO and Principal Broker, Lendmax Inc. (FSRA brokerage #13398)Updated 8 September 2026 · Published 8 September 2026

A HELOC — a home equity line of credit — is a revolving line of credit secured against your home. You are approved for a limit, you draw what you need when you need it, you pay interest only on the balance, and as you pay it down the room comes back. In Canada the revolving portion is capped at 65% of your home's value, and the HELOC plus your mortgage together cannot exceed 80%.

Today a HELOC from a bank or credit union is priced at prime plus 0.50% to 1.00% — with prime at 4.45%, that is roughly 4.95% to 5.45%, variable, interest-only. That is a fraction of what a card or an unsecured line costs, which is the whole appeal, and it is also why a HELOC can quietly become a mortgage that never gets paid down. This page covers how a HELOC is sized and qualified, what it costs against the alternatives, when a home equity loan or a refinance is the better tool, and how to use one without it using you.

When a HELOC is the right tool — and when it only looks like it

A revolving line is for money you need in stages or may not need at all. A lump sum you will owe for a decade is a different problem with a different answer.

How does a HELOC work in Canada?

A HELOC is registered against your home as a second charge behind your mortgage, or as part of a single collateral charge with it. The lender approves a limit based on your home's appraised value, your existing mortgage and your income. You draw from it like a chequing account — cheque, transfer, card — and each month you are billed the interest on the balance, calculated daily at the lender's HELOC rate, which is prime plus a spread.

The minimum payment is interest only. Nothing forces you to repay principal, and there is no end date. That is different from every other kind of mortgage, and it is the reason a HELOC needs a plan: you decide what the repayment schedule is, or there is none.

The limit is set by two ceilings. The revolving portion cannot exceed 65% of the home's value, and the HELOC plus any mortgage cannot exceed 80% of the value. A home worth $900,000 with a $420,000 mortgage can carry a HELOC of up to $300,000 — the 80% combined limit of $720,000 minus the mortgage, which is well inside the 65% revolving cap of $585,000.

HELOC room on a $900,000 home

HELOC rates in Canada today

HELOC rates are variable and priced off prime. With prime at 4.45%, a bank or credit union HELOC is typically prime + 0.50% (4.95%), sometimes prime + 1.00% (5.45%) for smaller limits or weaker files, and occasionally prime flat for large relationships. Alternative lenders price HELOCs at prime + 2% to 4%, and private equity lines sit higher again with a fee.

Because the rate is variable, every Bank of Canada move changes your cost the same day. On a $100,000 balance, a quarter-point move is about $21 a month. The interest is not tax-deductible unless the borrowed money is invested to earn income — a renovation is not, a rental property down payment generally is; ask an accountant before you count on it.

The HELOC stress test: qualifying on the full limit

Since OSFI's B-20 guideline was tightened, a federally regulated lender qualifies a HELOC as if the entire limit were drawn and amortized over 25 years at the qualifying rate — the greater of the HELOC rate plus 2% or 5.25%. A $300,000 limit at 4.95% is qualified as a $300,000 loan at 6.95% over 25 years: about $2,100 a month counted against your debt-service ratios, even if your balance is zero.

This is why a HELOC is far harder to get than its cost suggests, and why the limit you are offered is often smaller than the equity math allows: the equity says $300,000, the income says $180,000. It is also why a HELOC should be arranged while your income supports it — before a retirement, a parental leave or a move to self-employment — rather than after.

Provincially regulated credit unions set their own qualifying rule and are often more generous; a broker knows which ones.

HELOC vs home equity loan vs refinance

The three ways to borrow against a home are priced and structured differently, and the right one depends on whether you need a lump sum or a reserve, and whether you want to be made to repay it.

A refinance replaces your mortgage with a larger one to 80% of value, at a fixed or variable mortgage rate — the cheapest rate of the three — with a forced amortization. It costs a penalty if your term is not up. A home equity loan (an amortizing second mortgage) is a lump sum behind your first at a higher rate than a refinance, with its own schedule. A HELOC is the most flexible and the least disciplined.

HELOC, home equity loan and refinance compared

Readvanceable mortgages: the HELOC that grows as you pay

A readvanceable mortgage combines a mortgage and a HELOC under one collateral charge, with a fixed total limit. Every principal payment on the mortgage becomes new room on the line. Pay $1,000 of principal this month, and $1,000 more is available to draw next month, without applying for anything.

It is a powerful structure for investors — the Smith Manoeuvre is built on it — and a dangerous one for anyone who treats the growing room as income. Since December 2023 OSFI has also required that the portion of a combined loan plan above 65% loan-to-value be amortizing, not revolving, so a readvanceable line only readvances once the combined balance is at or under 65%.

How much can you borrow with a HELOC?

Take the lower of two numbers. The equity number: 80% of your home's appraised value minus your mortgage balance, capped at 65% of value for the revolving portion. The income number: the limit whose stress-tested 25-year payment, added to your mortgage and other debts, keeps you inside the lender's ratios — 39% GDS and 44% TDS at a bank.

For most homeowners with a mortgage in place, the income number is the smaller one. A household earning $150,000 with a $2,300 mortgage payment and no other debts qualifies for a HELOC limit of roughly $180,000 to $200,000 at today's qualifying rate, however much equity the house holds. Run it in the refinance calculator for the equity side, and send us the file for the income side.

Who qualifies for a HELOC, and who is turned down

Banks want 20% or more equity after the HELOC, a credit score of about 680 or better, provable income that carries the stress-tested limit, and a property they will lend on — a house or condo in a major market, not raw land or a commercial unit. Self-employed borrowers qualify on the same two-year net income rule as a mortgage, which is where many are declined.

Declines are usually about income, not equity, and they are where alternatives start: a credit union with a lighter qualifying rule, an alternative lender's HELOC at prime plus 2% to 4% with stated income, or — for a defined short-term need — a private equity line at a higher rate with a fee. Each is a step down in price and a step up in flexibility, and the right one depends on how long you will carry the balance.

• 20% equity remaining after the line, on a property a lender will take
• Income that carries the full limit at the qualifying rate — this is the usual stopper
• Credit of roughly 680+ at a bank; lower at a credit union or alternative lender
• A plan to repay principal, because the lender will not ask you to

Using a HELOC without it using you

Set your own amortization: pick a monthly principal payment and automate it, so the line trends to zero rather than to the limit. Keep the reserve and the project separate — a HELOC that is both an emergency fund and a renovation budget ends up being neither. Do not fund a lifestyle from it; the interest-only payment makes $60,000 of spending feel like $250 a month, and that is the mechanism by which people arrive at retirement with a line at its limit. And remember it is variable: budget for the payment at 2% higher than today's rate, which is what the lender did.

Finally, keep an eye on the day your mortgage renews. Many lenders will only move a mortgage with a HELOC attached if the line is closed or moved with it, which turns a straightforward switch into a refinance with an appraisal. Knowing that a year out is what lets a broker keep your renewal options open.

How we place a HELOC

A HELOC is a product almost every bank offers and almost every bank underwrites differently — on income, on self-employment, on the appraisal, on whether the line can be separate from the mortgage. We place it with the lender whose rule fits your file, at the best spread to prime that file earns.

Where a bank will not, we know the credit unions and alternative lenders that will, and we will tell you plainly when a refinance or a home equity loan is the cheaper tool for what you are actually doing.

1. Size both numbers — The equity room and the income room, so you know before applying which one is binding and whether an appraisal is worth ordering.
2. Choose the structure — A standalone HELOC behind your existing mortgage, a readvanceable combined plan, or — if the term is up — a refinance with a line attached. Each has a different cost to change later.
3. Place it with the lender that fits — Bank, credit union or alternative lender, at the lowest spread the file supports. One application, one credit inquiry.
4. Put a repayment plan in writing — The lender will not; we will. A monthly principal payment and a date the line should be back to zero, so the cheapest credit you own stays cheap.