Best Home Equity Line of Credit (HELOC) mortgage rates
How do payments on a home equity line of credit (HELOC) work?
What happens if I don’t use my HELOC? Can I cancel it?
Should I close an unused HELOC?
How long do you have to use a HELOC?
What are the downsides of a home equity line of credit (HELOC)?
What is the maximum amount I can borrow with a HELOC?
Why is my HELOC payment so high?
Does a HELOC affect my current mortgage?
How is getting a HELOC different from refinancing your mortgage?
What is the difference between a HELOC and a home equity loan?
Historical home equity line of credit (HELOC) rates
From 2012 - Today
Compare current mortgage rates across the Big 5 Banks and top Canadian lenders. Take 2 minutes to answer a few questions and discover the lowest rates available to you.
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Jamie David, Sr. Director of Marketing and Mortgages
A home equity line of credit (HELOC) is a revolving line of credit that allows you to borrow the equity in your home at a much lower interest rate than a traditional line of credit. By taking out a mortgage with a HELOC feature, you’ll have access to a pre-approved amount of cash within your mortgage. When you use the money from a HELOC, you’ll have to pay the interest on it on top of your regular mortgage payments. HELOCs come with variable rates that are usually higher than those for regular variable-rate mortgages.
A home equity line of credit is one of the best ways to access the equity you’ve built up in your home, and a low-cost alternative to other lines of credit like credit cards or personal loans. However, it’s important to know some details about HELOCs before you decide to take one out.
Here's everything you need to know about getting a HELOC in Canada. When you're ready, use the tools at the top of this page to receive personalized quotes from multiple providers.
November 2023 mortgage market update
The last few months have been volatile for the Canadian mortgage market, and November 2023 has shown no signs of calming down. Historically high bond yields are finally starting to come down and exerting downward pressure on fixed mortgage rates, while variable mortgage rates remain elevated following two consecutive rate hikes by the Bank of Canada in June and July that took the Overnight Lending Rate to 5%. Here’s what today’s Canadian mortgage shopper should be aware of:
Bond market update: After months of remaining elevated at historically high levels, Canadian bond yields are at last beginning to moderate in the wake of recent rate holds from the Bank of Canada and the US Federal Reserve on October 25 and November 1, respectively.
The five-year Government of Canada bond has cooled to the 3.7% range, down from a high of 4.4% attained in October (and not witnessed since 2006). This has made it possible for lenders to start lowering their fixed-rate mortgage products also, as bond yields are used to set the threshold for their pricing. The first week of November has seen a number of lenders reduce their fixed mortgage rates by some 30 basis points (0.3%) on average.
Although it remains difficult to say whether bond yields will keep coming down, multiple recent key economic reports (e.g. jobs and GDP) have come in softer than anticipated and thus bolster the rationale for central banks to stop hiking rates. Inflation, which is the primary culprit behind the rate hikes, also seems to be trending in the right direction, with the most recent CPI reading from October coming in more or less as expected at 3.1%, and under September's figure of 3.8%. It is highly likely that the Bank of Canada will hold rates steady at its final announcement of the year on December 6, 2023, and analysts are increasingly predicting that a rate cut could come as early as the latter half of 2024.
CPI update: The Bank of Canada has its eye fixed on inflation, as this is the primary metric that guides its monetary policy. To influence inflation, the Bank uses its target Overnight Lending Rate (also known as the policy rate or benchmark rate). When inflation is trending too high, as it has been ever since the end of the pandemic-related lockdowns in 2021, the Bank increases its policy rate, thereby making the cost of borrowing higher. This in turn serves to discourage consumer spending and borrowing activity, which causes inflation to relent. Conversely, when the economy is in a slump, the Bank reduces the target Overnight Lending Rate to make borrowing cheaper and encourage both borrowing and spending behaviour.
The latest Canadian consumer price index (CPI), released by Statistics Canada on November 21, revealed that headline inflation declined to 3.1% in October 2023, down from 3.8% the previous month. On a monthly basis, CPI increased by a mere 0.1%, following a similarly sized decline in September.
The lower inflation number was fuelled in large part by softening gas prices, which fell by -7.8%. Nevertheless, other factors, particularly mortgage interest costs and rents, remained steeply elevated, having risen 30.5% and 8.2% year over year, respectively. Service prices are also exerting upward pressure on the CPI, having gone up by 4.6% on an annual basis (compared to 3.9% in September). On the other hand, grocery costs fell from 5.8% in September to 5.4% in the latest reading.
A major positive development is the cooling of core inflation (which is inflation stripped of the most volatile costs, like gas and food). This measure fell to 3.6%, down from September’s 3.7%. In total, the latest inflation data makes a strong case for a third consecutive rate hold by the Bank of Canada at its final announcement of the year on December 6. Mortgage borrowers and home buyers alike can reasonably expect stability for the remainder of 2023.
Real estate update: On November 15, 2023, the Canadian Real Estate Association (CREA) released the most recent Canadian housing market statistics for the month of October. After a sluggish summer, the Canadian real estate market continued to slow down in October, slackening even further than it did in September. Per CREA, residential real estate sales declined in the majority of markets nationwide.
Some 33,921 homes changed hands across Canada, down on a monthly basis by -5.6%, and virtually flat on an annual basis, with just a 0.9% increase year over year. The average home price in Canada climbed marginally to $656,625, marking an annual increase of 1.8% and virtually the same as September.
Although 70,020 new listings came to the market in October, this actually represented a monthly decline of -2.3%, the first such drop recorded since March. This figure is still up by 16% year over year, however.
With decreased demand outpacing the decline in new listings, the sales-to-new-listings ratio dropped to 49.5%, a low not seen for 10 years and a major drop from the past April’s high of 67.9%. Canada’s housing market is now squarely in balanced market territory. CREA defines a ratio between 40 - 60% to reflect a balanced housing market, with above and below that threshold indicating sellers’ and buyers’ market conditions, respectively.
Provided the Bank of Canada maintains rates, we can reasonably expect that buying activity will remain depressed until at least the spring of 2024.
October 25, 2023: Highlights from the Bank of Canada announcement
On October 25, 2023, the Bank of Canada kept the target for the overnight rate unchanged at 5.00%
- Canadians with home equity lines of credit (HELOC) will be glad to see that their rates have not risen further, but will likely be concerned about the prospect of “higher for longer” interest rates.
- Although a number of key data points used by the Bank to justify a rate hold (including softening GDP, flat retail sales, and, most importantly, September’s softer-than-expected CPI figure of 3.8%), inflation itself remains stubbornly higher than the Bank’s target of 2%. In its commentary accompanying the announcement, the Bank expressed concerns over this and reiterated that it would not hesitate to effect further rate hikes if deemed necessary to rein in inflation.
- Fixed mortgage rates are not directly tied to the Bank of Canada’s decisions, but rather to activity in the bond market. With today’s rate hold widely expected, bond yields – and thus fixed mortgage rates – will remain at their current elevated levels for the time being.
- Given the softening real estate market across the country, anyone looking to sell a home and buy a new one should sell first before purchasing in order to know what their sale price will be.
Home equity line of credit (HELOC) features
All home equity lines of credit are different, so it's important to consider the features of any HELOC that you’re considering taking out. Below are some of the features that can differ between different HELOC products:
- Minimum and maximum amounts: The minimum amount of a HELOC varies from bank to bank, and some institutions may not offer the product at all. The maximum HELOC amount is calculated as 65% loan-to-value of your home, as shown in the sample calculations below.
- Revolving balance: HELOCs are described as having a revolving balance, because borrowing multiple times within the account for any amount up to the allowable credit limit does not require writing a new loan document. The credit limit can also be increased as the equity in your home grows if your HELOC is combined with your mortgage (see the following section, Types of HELOCs, for more details).
- Sub-divide lines: It is sometimes possible to divide up your HELOC into smaller portions through different sub-accounts. An example of where this may be used is if you wanted to draw out equity to invest in the stock market. In this case, the interest you pay on borrowed money is tax-deductible, so having a separate account makes it easier to track the money.
- Option to convert to fixed: You can sometimes convert a portion of your outstanding borrowed HELOC funds to a fixed rate, which you will then pay like a standard mortgage.
- Second position HELOC: This means that you can hold your mortgage with one bank and get a HELOC with another bank. A HELOC is not necessarily a “second mortgage". A "first" or "second" mortgage is used to refer to the loan's claim position. A HELOC is often second position because there is another mortgage on the property at the time. However, it is possible to have a HELOC in first position. HELOCs usually have higher interest rates because it is assumed that they will be in second position and, as a result, are riskier to the lender. In the case of you defaulting, the lender in second position is not repaid until the first position lender is.
Types of home equity line of credit (HELOC)
Home equity line of credit (HELOC) combined with a mortgage
This product, sometimes called a readvanceable mortgage, is offered by most major financial institutions in Canada. It is a combination of a HELOC and a fixed-rate mortgage. Some of the key features of this type of HELOC are:
- You typically do not have fixed repayment amounts on your HELOC - you only have to pay interest on the money you’ve used.
- You will have to pay regular, fixed payments on your mortgage as stipulated in your contract.
- The credit limit on your HELOC is up to 65% of your home’s market value. As you build equity in your home by paying off the principal, the credit limit will increase proportionately.
Stand-alone home equity line of credit (HELOC)
A stand-alone HELOC is not related to your mortgage; it’s simply a revolving line of credit guaranteed by your home. Key features of a stand-alone HELOC include:
- The credit limit can be up to 65% of your home’s market value
- Unlike a HELOC combined with a mortgage, the credit limit of a stand-alone HELOC does not increase as you pay off the principal of the loan.
How do you qualify for a home equity line of credit (HELOC)?
Among the most attractive features of a HELOC is that you only have to qualify and be approved for a HELOC once. Then, you can use the funds in your HELOC any time you choose. In order to qualify, you’ll need the following:
- A minimum down payment or equity in your home of at least 20%
- A good credit score – You would need a credit score of at least 680 to qualify for the best rates, and at least 600 to qualify at all for a HELOC from a regular lender (as opposed to a sub-prime lender, who will charge higher rates)
- Proof of income – You’ll need to demonstrate proof of income in the form of pay stubs and/or tax documents such as your Notice of Assessment
- An acceptable debt-to-income ratio – This varies from lender to lender, but the general range is 40-50%.
- Proof that you own your home
- All necessary mortgage details, including the balance, term and amortization period
In addition to the above, you’ll also need to pass a stress test, much like you would when trying to obtain a mortgage. You’ll be stress tested at either the qualifying rate of 5.25% set by the Office of the Superintendent of Financial Institutions (OSFI), or your contract rate + 2%, whichever is higher.
What are the pros and cons of a home equity line of credit (HELOC)?
Like any financial product, a HELOC comes with both pros and cons, some of the most important of which are laid out below.
- Relatively easy access to a large amount of credit
- Lower interest rates than other types of credit, such as credit cards
- You only pay interest on the amount that you actually use (not the entire amount available to you)
- You can pay back the entire balance at any time without incurring a pre-payment penalty fee
- It’s a flexible line of credit with no set repayment schedule
- You have to be disciplined in terms of repaying the loan, because there is no set repayment schedule – otherwise you could find yourself in a lot of debt for a long time
- A HELOC has a variable interest rate, meaning that it fluctuates along with your lender’s prime rate; should the Bank of Canada choose to raise the target for the overnight rate, your HELOC interest rate will rise accordingly
- You may not be able to switch your mortgage to another lender unless you have paid your HELOC off in full
- If you are unable to make payments on your HELOC even after negotiating with your lender, since it is a loan guaranteed by your home, your lender can take possession of your home
Tips to consider before getting a home equity line of credit (HELOC)
Because of the flexibility of a HELOC, you need to be disciplined about how you handle the money you can access through this product. To avoid getting into trouble down the road, it’s helpful to consider the following before getting a HELOC.
- Do you really need a HELOC? You might be able to achieve your goals by being more economical and building up your savings.
- Do you have a clear plan of how you intend to use the credit you’ll be able to access with a HELOC?
- Do you have a budget for how you intend to use the money you can access with a HELOC? This will help you determine the credit limit that you actually need.
- Have you shopped around for the right lender? Have you negotiated to make sure you are getting the product that you want?
- Have you made a repayment plan? As mentioned, the flexibility of a HELOC can get you into trouble if you aren’t careful.
Transferring your home equity line of credit (HELOC)
At the end of your mortgage term, when you are getting ready to renew, you may want to go with a different mortgage provider, in which case you would want to transfer your mortgage and your HELOC. Not all lenders will allow you to switch without paying off your HELOC – you’ll want to review your contract and consult with your lender to see if this is an option for you.
If you are allowed to transfer your HELOC, you’ll almost certainly have to pay a number of legal and administrative fees. These will vary from lender to lender.
Is a home equity line of credit (HELOC) right for you?
As with any other major financial decision, before you take out a HELOC, think about your financial needs and your current situation. A HELOC is a great option if you want flexibility and think you may be able to pay it off early. For example, if you're obtaining a HELOC to perform renovations on your home prior to selling it, the value added to your home outweighs the amount you will have to pay in interest on the HELOC.
Because of its flexibility and low monthly payments, a HELOC may be a better choice than a conventional loan in some situations. For example, for many parents in Canada, obtaining a HELOC is a useful vehicle to assist their children in making a down payment on a first home.
If you're unsure as to whether getting a HELOC is the right choice for you, it helps to speak with a mortgage broker, who can give you expert, personalized advice for free.
How much home equity line of credit (HELOC) can I get?
How to calculate your maximum home equity line of credit
As per the Office of the Superintendent of Financial Institutions (OSFI), a HELOC can give you access to no more than 65% of the value of your home. It's also important to remember that your mortgage loan balance + your HELOC cannot equal more than 80% of your home's value.
To see how this works, let's look at an example:
Case study: Henry's HELOC
- Home value: $600,000
- Mortgage balance: $300,000
The first step is to calculate the maximum loan-to-value (LTV) ratio. To do this, Henry needs to multiply his home value by 80%, in keeping with the guidelines mentioned above. So, in this example, it would be:
$600,000 (home value) x 0.8 (80%) = $480,000 (maximum LTV amount)
The next step is to calculate the maximum amount of equity Henry can pull from his home. To do that, Henry needs to subtract his mortgage balance from the maximum LTV amount that he just calculated above. So here, it would be:
$480,000 (maximum LTV amount) - $300,000 (mortgage balance) = $180,000 (maximum allowable HELOC)
Finally, Henry wants to make sure that $180,000 doesn't exceed 65% of his home's value, per OSFI's guidelines. For this last calculation, he simply has to divide the HELOC amount by the value of his home:
$180,000 (maximum allowable HELOC) ÷ $600,000 (home value) = 0.3 (30%)
In this example, Henry can access $180,000 through a HELOC, as it only equals 30% of his home's value and is thus well under the 65% maximum allowable amount permitted by OSFI.
Comparing home equity line of credit (HELOC) products
As well as the rate of a HELOC, you'll also need to consider the features of any product you're considering. You can compare the different HELOC products in the chart below to find one that suits your needs. Please note that while we have only included a selection of HELOC products offered by the Big Banks, many other lenders offer HELOCs as well. Make sure to shop around to obtain the best rate on your HELOC. A description of the compared features can be found under the table.
For more information, check out these helpful pages:
Jamie David, Director of Marketing and Head of Mortgages
Jamie has 15+ years of business and marketing experience. She contributes her mortgage expertise to The Globe and Mail and authors Ratehub’s mortgage and homebuying guides. read full bio