Private HELOCs: How a Private Home Equity Line of Credit Works
A home equity line of credit (HELOC) lets you draw on your home's equity as you need it and pay interest only on what you use. Bank HELOCs are cheap but hard to qualify for. A handful of private lenders and mortgage investment corporations offer a private version — a revolving line secured by a mortgage, approved on equity rather than bank ratios. It's a niche product, and it's worth knowing exactly how it differs from a bank line before you take one.
Key takeaways
- A private HELOC is a revolving line of credit secured on your home by a private lender, often registered behind your first mortgage.
- You pay interest only on the amount drawn — but fees are usually charged on the full limit when the line is set up.
- Private lines are priced well above bank HELOCs, typically close to private second-mortgage rates.
- Few private lenders offer true revolving lines; a private second mortgage or a staged-draw loan is often the practical alternative.
What is a private mortgage?
A private mortgage is a loan secured on your home from a non-bank lender — a mortgage investment corporation, a private lending company or an individual investor. A private HELOC is a private mortgage structured as a line of credit: the mortgage secures a maximum limit, and you draw and repay within it. For how bank HELOCs work, see HELOC explained and our HELOC page.
What is a second mortgage?
A second mortgage is registered behind your first. Most private HELOCs are registered in second position for their full limit, leaving your first mortgage untouched. That registration matters: lenders and future refinances look at the limit, not just what you've drawn, when they calculate your combined loan-to-value.
Why are private mortgage positions important?
A second-position line is repaid after the first mortgage if the home is sold, so the lender takes more risk and prices it higher. Position also affects what you can do next: a line registered for a large limit uses up equity that another lender might otherwise lend against, and your first mortgage lender may treat a default on the line as a default on its own loan.
Who lends private HELOCs?
- Some mortgage investment corporations offer revolving equity lines for strong-equity urban properties.
- A small number of private lending companies offer lines or "staged-draw" loans, where you draw tranches as needed.
- Credit unions — not private lenders, but provincially regulated and sometimes more flexible than banks on HELOC qualification.
Bank and federally regulated HELOCs follow OSFI's Guideline B-20: the revolving portion is capped at 65% of the home's value, 80% combined with your mortgage, and you must qualify at the stress-test rate. Private lenders aren't bound by those rules, which is the reason borrowers look at them — and the reason they charge more.
How does the payment work on a private HELOC?
You pay interest only on the balance drawn. Fees, though, are usually charged on the whole limit at set-up, and some lenders add a standby charge on unused room. Example: a $200,000 private line at 10.99%, compounded semi-annually:
| Amount drawn | Monthly interest |
|---|---|
| $0 | $0 (plus any standby fee) |
| $60,000 | about $537 |
| $200,000 (fully drawn) | about $1,791 |
If the lender charges a 2% fee on the limit, you'd pay $4,000 at set-up even if you only ever draw $60,000. Compare that with a private home equity loan for just the amount you need — often the cheaper choice when you know the number.
What's the term of a private HELOC?
Usually 12 months, renewable at the lender's option, and the full drawn balance is due at maturity if it isn't renewed. That's very different from a bank HELOC, which normally stays open indefinitely while you're in good standing. Plan the exit — typically consolidating the line into a refinance at your first mortgage's renewal.
What are the criteria to get approved for a private HELOC?
- Substantial equity — lenders typically want the full limit plus your first mortgage to stay within about 65% to 75% of value.
- A marketable property, usually urban detached or semi-detached.
- An appraisal and title search.
- A first mortgage in good standing, if there is one.
- A reason for revolving access — renovations paid in stages, business cash flow, or a known set of upcoming expenses.
Why are private HELOC rates higher than traditional HELOCs?
A bank HELOC is priced at prime plus a small margin because the bank lends deposit money to a borrower who passed the stress test, often in first position. A private line uses investor capital, usually sits in second position, is uninsured, and must earn its return on a balance that can go up and down — or sit at zero. Those factors push private lines toward second-mortgage pricing.
What are the pros and cons of a private HELOC?
| Pros | Cons |
|---|---|
| Draw only what you need; interest only on the balance used | Fees usually charged on the full limit up front |
| Approval on equity, without bank debt ratios or the stress test | Far higher rate than a bank HELOC |
| Keeps your existing first mortgage in place | Short term — the full balance can be called at maturity |
| Useful for staged renovations or uneven business cash flow | Few lenders offer it; terms vary widely |
Sources
This article is general information, not financial or legal advice. Private line-of-credit terms vary widely by lender. Examples are illustrative and rounded. Credit is subject to lender approval.
Frequently asked questions
Some MICs and private lenders offer revolving lines, but they're less common than private second mortgages. A broker can tell you which lenders currently offer them for your property type.
Only if you draw much less than the limit for much of the term. Because fees are usually charged on the limit, a second mortgage for the exact amount is often cheaper.
No. The 65% revolving cap comes from OSFI's Guideline B-20, which applies to federally regulated lenders. Private lenders set their own limits, usually by combined loan-to-value.
Yes, if you qualify. Refinancing into a bank mortgage with a HELOC component, once your credit and income qualify, is the usual exit.
Need flexible access to your equity?
We'll compare a private line, a private second and a bank or credit-union HELOC for your situation, with every fee shown.