Home equity loans and HELOCs in Canada: how much you can borrow and which one actually costs less

A home equity loan is any borrowing secured against the value of a home you already own, beyond what you owe on it. In Canada that phrase covers four genuinely different products — a home equity line of credit (HELOC), a refinance of your existing mortgage, a second mortgage, and a reverse mortgage — and they are priced so differently that choosing the wrong one on a $300,000 request can cost you $15,000 a year.

The number that governs almost all of it: a HELOC can go to 65% of your home's value on the revolving portion, and 80% combined when it sits behind a mortgage. Those are the federal rules, and you will see higher figures quoted online. Anything above 65% on a standalone revolving line is coming from a lender outside federal regulation — a credit union or a provincially regulated lender — and it is worth knowing which one you are dealing with.

This page explains what each product actually is, what it costs at today's prime rate of 4.45%, how a HELOC's interest-only minimum quietly works against you, and two things almost nobody writes about: the collateral charge that can trap you at your current lender, and the fact that your lender can reduce or cancel your HELOC limit whenever it likes.

Signs you should be looking at your home equity

Equity is not useful until something makes it useful. These are the situations where taking it out usually pencils.

What counts as a home equity loan in Canada?

"Home equity loan" is an American term that Canadians search for and Canadian lenders do not really sell. There is no product at a Canadian bank called a home equity loan. What exists is four ways to convert equity into money, and the phrase maps onto all of them depending on what you actually need.

Your equity is your home's current value minus everything secured against it. If a lender values your home at $900,000 and you owe $480,000, your equity is $420,000 — but the borrowable portion is smaller, because lenders leave a cushion. At the 80% combined ceiling, that home supports $720,000 of total secured debt, so $240,000 is available, not $420,000.

Which product to use comes down to three questions: do you need the money once or repeatedly, do you want a fixed payment or a flexible one, and how expensive is it to disturb the mortgage you already have?

The four ways to borrow against home equity in Canada

How much can I borrow with a HELOC?

A HELOC can go to 65% of your home's value. That is the Financial Consumer Agency of Canada's stated limit and it is the number federally regulated lenders work to. If your HELOC sits behind a mortgage, the two together cannot exceed 80% of value — you must keep 20% equity in the home.

Both limits apply at once, and the smaller of the two is the one that binds. On a $1,420,000 home with a $520,000 mortgage: 65% of value is $923,000, and 80% of value less the mortgage is $616,000. The HELOC available is $616,000, because that is the smaller number. On the same home with no mortgage at all, the standalone HELOC would cap at $923,000.

You will find pages online quoting 75% or 80% for a standalone HELOC. That figure comes from lenders who are not federally regulated — credit unions and provincially regulated lenders — and it is real, but it is not the general rule and it usually costs more. When someone quotes you a limit above 65% on a revolving line, ask who the lender is regulated by.

• The value is the lender's — an automated valuation model first, then an appraisal at $300–$500 if the file is close to a limit
• Every registered charge counts against the 80%, including a second mortgage or a collateral charge from a car loan
• A HELOC's approved limit and your drawn balance are different things — you are only charged interest on what you draw
• Higher loan-to-value usually means a higher markup over prime, not just a lower limit

HELOC room on a $900,000 home

How does a HELOC work in Canada, and what does it cost?

A HELOC is a revolving line of credit secured by your home. You are approved for a limit, you draw what you need, and you pay interest only on the drawn balance — calculated daily. Pay it down and the room comes back. There is no fixed term and no scheduled payoff date.

HELOCs price at prime plus a markup. With prime at 4.45%, a HELOC at prime plus 0.50% costs 4.95% today, and borrowers with lower credit scores or higher loan-to-value are quoted prime plus 1.00% or more. That is the detail worth pausing on: mortgages currently price below prime — the best five-year variable is 3.35%, which is prime minus 1.10% — while HELOCs price above it. The gap between a HELOC and a mortgage is often 1.5 percentage points or more on the same house, on the same day, from the same lender.

The minimum payment is interest only, and this is where HELOCs quietly go wrong. Interest-only on $100,000 at 4.95% is $412.50 a month, and paying exactly that for five years costs $24,750 with the balance still at $100,000. The same $100,000 as an amortizing mortgage at 4.29% costs $541.86 a month, and after five years you have paid $19,999 of interest and owe $87,488. The HELOC feels $129 cheaper each month and is $17,262 more expensive over five years.

Standalone HELOC

A revolving line registered on its own, with no mortgage behind it or beside it. Capped at 65% of value. Best for people who own outright or nearly outright and want flexible access without disturbing anything.

Combined or readvanceable HELOC

A mortgage and a HELOC packaged under one registration, usually a collateral charge. As you pay down the mortgage, the HELOC limit grows automatically. Convenient, cheap to set up, and — as the next section explains — expensive to leave.

Fixed-rate options inside a HELOC

Many lenders let you convert part of a drawn HELOC balance into a fixed-rate, fixed-term segment. If you are carrying a balance you do not expect to clear inside a year, this is usually worth asking about — it converts an interest-only habit into an actual payoff schedule.

HELOC vs refinance vs second mortgage: which is actually cheaper?

Rate alone will mislead you here. The right comparison is total cost over the period you will actually hold the debt, including what it costs to disturb the mortgage you already have.

If your existing mortgage rate is low and mid-term, a HELOC almost always wins even though its rate is higher — because a refinance would reprice your whole balance. Someone holding $520,000 at 2.49% with 14 months to maturity who refinances to 4.29% pays an extra 1.80% on the entire balance: about $10,920 over those 14 months, plus a $3,237 three-months-interest penalty, to get money that a HELOC would have provided at 4.95% on the new borrowing only.

If your existing mortgage is maturing, or the amount you need is large, a refinance usually wins — one charge, the lowest rate on the board, and a payment that actually amortizes. And if you cannot pass the stress test at contract rate plus 2%, or you need to go above 80%, a second mortgage is the only door left. It is the most expensive door, at roughly 10% to 13% for a private second in Ontario plus a lender fee of 1% to 3%, and it should always be arranged with a written exit plan.

Borrowing $100,000 against your home — cost of the first year

The collateral charge trap nobody warns you about

A collateral charge is a way of registering a mortgage that lets the lender re-advance money without new registration. Most readvanceable HELOC packages use one, and several major banks register every mortgage this way by default. It is convenient while you are with that lender and expensive the day you want to leave.

Two problems follow. First, most lenders will not take an assignment of a collateral charge, so what would have been a free switch at renewal becomes a full refinance with legal fees, an appraisal and a discharge — often $1,500 to $2,500 you would not otherwise have paid. Second, collateral charges are frequently registered for far more than you borrowed, sometimes 100% or 125% of the property value. A second-mortgage lender looking at title sees no room behind that registration, even though your actual balance leaves plenty, and simply declines.

The fix is not complicated, but it needs to be known in advance: either negotiate with the existing lender to increase within the collateral charge, or discharge it entirely and refinance elsewhere as a standard charge. Both are workable. Neither is free, and neither is a pleasant surprise to discover the week you need the money.

• Ask your lender directly: is my mortgage registered as a standard charge or a collateral charge, and for what amount?
• A collateral charge does not stop you borrowing — it changes who you can borrow from and what it costs
• If you are choosing a mortgage now and value flexibility, a standard charge is worth asking for
• Registered amount and owed amount are different numbers; both matter to a second lender

Your lender can reduce or cancel your HELOC limit

A HELOC is a demand facility. The agreement almost always allows the lender to reduce the credit limit, freeze the undrawn portion, or demand repayment of the drawn balance — without you having done anything wrong. This is not a hypothetical clause; limits get trimmed when property values soften, when a credit score drops, or when a lender decides to reduce its exposure to a region.

The practical damage is rarely the lost room. It is the payment. Lenders that reduce a limit below the drawn balance typically convert the drawn amount into an amortizing term loan, and the payment change is dramatic. A $142,000 balance costing $644.92 a month interest-only at 5.45% becomes $1,537.56 a month on a ten-year repayment schedule. That is $893 more per month, arriving on a letter with 30 days' notice.

If you rely on a HELOC as an emergency fund, it is worth being clear-eyed: an emergency fund that a third party can cancel is not an emergency fund. And if you are carrying a large drawn balance long-term, converting it to a mortgage — where the rate is contractually fixed for a term and the lender cannot re-price it — is usually the safer structure as well as the cheaper one.

Qualifying for a HELOC or an equity takeout

HELOCs at federally regulated lenders are subject to the stress test. You must qualify at the greater of your contract rate plus 2% or 5.25% — and lenders usually qualify you on the full approved limit, not on what you plan to draw. A $200,000 HELOC you intend to use $40,000 of is underwritten as $200,000 of debt. That surprises people and it is the single most common reason a HELOC application fails.

Credit matters more on a HELOC than on a mortgage. The best HELOC pricing generally requires a score around 680 or better; below that you will still see approvals, at prime plus 1.00% or more, and below roughly 620 most federally regulated lenders will decline the revolving structure entirely. Income documentation is standard: two years of T4s or Notices of Assessment, or two years of T1 Generals and financials if you are self-employed.

If you fail that test and the equity is genuinely there, the equity-led market exists. B-lenders and credit unions will do an equity takeout to 80% with broader income rules at roughly 1.0% to 2.0% above A rates plus a fee of around 1%. Private lenders will register a second charge at roughly 10% to 15% interest-only with a 2% to 5% fee, to about 75–85% combined loan-to-value, and they are not bound by the stress test because they are not federally regulated. All of it is subject to lender approval, and all of it should come with a plan to get back to A pricing.

• A lenders: prime + 0.50% and up, stress test at contract + 2%, score around 680 for best pricing
• Credit unions: provincially regulated, sometimes higher standalone limits, own qualification rules
• B lenders: roughly 1.0–2.0% above A rates plus a ~1% fee, broader income documentation
• Private second mortgages: roughly 10–15% interest-only, 2–5% fee, no stress test, short terms

Is HELOC interest tax deductible in Canada, and what does setup cost?

In Canada, deductibility follows the use of the money, not what secures it. Interest on funds borrowed to earn income from a business or from investments is generally deductible; interest on funds borrowed to buy a car, renovate your own home or consolidate personal debt is not. The security given — house, line of credit, unsecured loan — is irrelevant to the test.

That makes tracing critical. If you draw $80,000 from a HELOC to buy dividend-paying investments and later draw another $30,000 for a kitchen, mixing both in one line makes the deductible portion difficult to defend. Lenders that allow multiple HELOC segments make this materially easier, and the cost of a second segment is usually nothing. We are mortgage brokers rather than tax advisors — bring your accountant in before the money moves, not at tax time.

Setup costs are modest. Many lenders charge nothing to establish a HELOC alongside a new mortgage. A standalone HELOC generally involves legal and registration work of roughly $700 to $1,500, plus an appraisal at $300 to $500 if an automated valuation cannot support the value. Ongoing, expect an annual fee of $0 to $75 at most lenders and a discharge fee of $250 to $400 when you eventually close it.

How Lendmax finds the cheapest way into your equity

Almost every equity request arrives framed as a product — someone wants "a HELOC" or "a home equity loan." The useful work is upstream of that: how much room exists, what it costs to disturb the existing mortgage, and which of the four routes is cheapest over the period you will actually hold the debt.

We start with an automated valuation model to establish your likely appraised value and both loan-to-value ceilings, an AI-assisted read of your credit file to identify the tier and pricing you genuinely qualify for, and a title check for charge type and registered amounts. Then we price HELOC, refinance and second mortgage side by side, fees included, across 30+ lenders. Signing is digital.

1. Calculate both ceilings, not one — 65% of value on the revolving portion and 80% combined. We show you the smaller number first, because that is the one that binds, and we deduct every registered charge — including collateral charges you may have forgotten about.
2. Check what your existing mortgage costs to disturb — Contract rate, months to maturity, penalty formula and charge type. If you hold a 2.49% mortgage with a year left, a refinance repricing that balance is usually the wrong answer no matter how good the new rate looks.
3. Price all four routes on total cost, not rate — HELOC at prime plus a markup, refinance at A-lender pricing, second mortgage with lender and broker fees converted into an effective annual cost, and reverse mortgage if you are 55 or older. Same period, same dollars, one table.
4. Structure the draw and the exit — Segmented HELOCs where tax tracing matters, staged advances where a renovation is invoiced in draws, and — on any alternative or private placement — a written plan and a diarized date to refinance back to A pricing.

This page covers: home equity loan, HELOC Canada, home equity line of credit, HELOC rates Canada, how does a HELOC work in Canada, how much can I borrow with a HELOC, HELOC vs home equity loan, HELOC vs refinance, HELOC vs mortgage, equity takeout mortgage, readvanceable mortgage Canada, standalone HELOC vs combined HELOC, minimum credit score for HELOC.