HELOC in Canada: how it works, limits, costs and risks
Quick summary
A HELOC is a credit line secured by your home. You can borrow up to 65% of your home's value, you pay interest only on what you use, and the rate is usually variable. If you do not repay, you can lose your home. Next step: check your payment with the stress test calculator.
Checked November 2, 2026. Main source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.. See all 4 sources.
What a HELOC is
HELOC stands for home equity line of credit. It is a revolving credit line, like a credit card, but it is secured by your home. You can borrow, pay it back and borrow again, up to your limit.
You pay interest only on the amount you have borrowed. Interest starts the day you take the money out.
Home equity is what your home is worth minus what you owe on it. Example from the Financial Consumer Agency of Canada: a $500,000 home with a $200,000 mortgage has $300,000 in equity, which is 60%.
Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
How much you can borrow
The limit is up to 65% of your home's value. The lender sets your exact limit after it values your home.
Our worked example, using the agency's $500,000 home: 65% of $500,000 is $325,000. A $200,000 mortgage is 40% of the home's value, so equity is 60%. Ask the lender how it counts your mortgage against the limit, because lenders differ.
| Your home | Example amount |
|---|---|
| Home value | $500,000 |
| Mortgage owed | $200,000 |
| Equity (value minus mortgage) | $300,000, or 60% |
| 65% of home value | $325,000 |
The home and mortgage numbers come from the agency's example. The 65% line is our arithmetic. Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
Who qualifies
- A HELOC on its own (a standalone HELOC) needs more than 35% equity.
- A HELOC bundled with your mortgage (a combined HELOC) needs 20% equity.
- Banks make you pass a stress test. That means showing you can afford the payments at a higher rate than you will actually pay.
- Lenders also look at your income, your debts and your credit.
Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
How the rate and payments work
- Most HELOCs have a variable rate, usually the lender's prime rate plus a set amount. Example from the agency: prime plus 1%.
- Prime can change when the Bank of Canada changes its policy rate. When prime goes up, your minimum payment can go up.
- Lenders can change your rate at any time. Federally regulated banks must tell you in writing within 30 days of a change.
- Your lender may ask for interest-only payments, or for principal plus interest.
- You can pay back some or all of it at any time.
Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
Why this matters right now
On October 28, 2026, the Bank of Canada raised its policy rate by 0.25 points to 2.5%. A higher policy rate can push banks' prime rates up, and a variable rate HELOC can follow. Check your lender's current prime rate and your own rate on your statement.
Source: Bank of Canada, press release of October 28, 2026. Checked November 2, 2026.
What interest-only costs
These numbers are our own example, not a quote from any lender. We use a rate of 6% to show the idea. Interest-only means you pay interest each month and the amount you owe does not go down.
| Amount borrowed | Interest per month at 6% | At 7% | At 8% |
|---|---|---|---|
| $20,000 | $100 | $117 | $133 |
| $50,000 | $250 | $292 | $333 |
| $100,000 | $500 | $583 | $667 |
Formula: amount times the yearly rate, divided by 12. Rounded to the nearest dollar. After 5 years of interest-only payments at 6%, a $20,000 balance is still $20,000, and you have paid $6,000 in interest.
Fees to ask about
- Setting it up: appraisal, legal fees (or a notary in Quebec), title search and an administration fee.
- Monthly or yearly account fees.
- Closing it: cancellation and discharge fees.
- Credit insurance is optional. You do not need it to be approved, and its coverage has limits.
Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
The risks, in plain words
- You can lose your home if you do not repay what you owe.
- A higher rate can make your payments hard to keep up with, most of all after a big withdrawal.
- Borrowing lowers your equity. That can limit your choices if you want to sell or move.
- Easy access to money makes it easy to borrow more than you can repay.
- Interest-only payments never reduce the amount you owe.
- If you sell your home, you must pay off the HELOC.
Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
HELOC compared with other ways to borrow on your home
| Option | Limit (of home value) | How you get the money | Rate |
|---|---|---|---|
| HELOC | Up to 65% | Borrow, repay and borrow again | Usually variable |
| Home equity loan | Up to 80% | One lump sum | Fixed payments over a set term |
| Second mortgage | 80% minus your mortgage balance | One lump sum | Generally higher than a first mortgage |
| Reverse mortgage | 55% minus your mortgage balance | Lump sum or instalments | Generally higher, interest adds up |
A reverse mortgage usually needs you to be a homeowner aged 55 or older. Source: Financial Consumer Agency of Canada, Borrowing against home equity. Checked November 2, 2026.
Combined or standalone HELOC
- Combined HELOC (also called a readvanceable mortgage): you hold it with your mortgage lender. Your available credit grows as you pay down your mortgage.
- Standalone HELOC: it is separate from your mortgage. Your available credit does not grow as you pay the mortgage down. You can use a different lender, and you can have one without a mortgage.
- Using a standalone HELOC to buy a home usually takes a bigger down payment and more equity, and the rate may be higher.
- You can pay off a standalone HELOC early without a prepayment penalty.
Source: Financial Consumer Agency of Canada, Home equity lines of credit. Checked November 2, 2026.
Is HELOC interest tax deductible?
The Canada Revenue Agency says interest on money you borrow to earn investment income, such as interest or dividends, can be deducted. It says you cannot deduct interest on money borrowed to contribute to an RRSP, TFSA, RESP, RDSP or FHSA, and it cannot be deducted if the only income the investment can earn is capital gains.
Its page does not cover borrowing for personal spending, such as a renovation or paying off cards. Talk to an accountant before you claim anything.
Source: Canada Revenue Agency, Line 22100, Carrying charges and interest expenses. Checked November 2, 2026.
Questions to ask any lender
- What is my credit limit, and how do you count my mortgage?
- What is the rate today, and what is it based on?
- Are payments interest-only, or principal plus interest?
- What are the setup, yearly and closing fees?
- Will you tell me in writing when the rate changes?
- If I move or renew my mortgage, what happens to the HELOC?
When a HELOC may not fit
If you are borrowing to cover everyday bills, a HELOC can turn a short problem into a long one, and your home is the security. A trustee, a credit counsellor or your lender may have safer options. Look at the debt help choices before you borrow against your home.
Questions people ask
What is a HELOC in Canada?
A home equity line of credit is a revolving credit line secured by your home. You can borrow, repay and borrow again up to your limit, and you pay interest only on what you borrow.
How much can I borrow with a HELOC?
Up to 65% of your home's value. The lender sets your exact limit after it values your home.
How much equity do I need for a HELOC?
A standalone HELOC needs more than 35% equity. A HELOC combined with a mortgage needs 20% equity.
Is a HELOC rate fixed or variable?
Most are variable, usually the lender's prime rate plus a set amount. Federally regulated banks must tell you in writing within 30 days if they change your rate.
Can I lose my home with a HELOC?
Yes. Your home is the security, so you can lose it if you do not repay what you owe.
Is HELOC interest tax deductible in Canada?
Only in some cases. The Canada Revenue Agency allows a deduction for interest on money borrowed to earn investment income. It does not cover personal spending. Ask an accountant.
What is the difference between a HELOC and a home equity loan?
A HELOC is a credit line you can reuse, with a limit of 65%. A home equity loan is one lump sum, up to 80% of your home's value, with fixed payments.