Home Equity Line of Credit (HELOC)

What questions should I ask when applying for a HELOC?

There are four key things you'll need to keep in mind when considering getting a mortgage with a home equity line of credit.

1. How much money can I borrow on a home equity line of credit?

In Canada, you can access up to 65% of the value of your home through a home equity line of credit. However, it's also important to remember that your outstanding mortgage loan balance + your HELOC cannot equal more than 80% of the value of your home.

To estimate your HELOC limit, start by multiplying your home’s value by 80% – this gives you the maximum combined amount you can owe on your mortgage and HELOC. Then, subtract your current mortgage balance. The result is the maximum HELOC you could qualify for, as long as it doesn’t exceed 65% of your home’s total value.

Let’s say your home is worth $600,000 and you owe $200,000 on your mortgage. Here’s how you can calculate your HELOC amount-

• 80% of $600,000 = $480,000 (maximum loan-to-value ratio)
• $480,000 – $200,000 = $280,000 (your potential HELOC limit)
• $280,000 ÷ $600,000 = 46.7% (within the 65% HELOC cap)

So in this case, you could qualify for a HELOC of up to $280,000.

2. How do I receive the funds with a HELOC?

With a home equity line of credit, the entire credit available is not advanced up front. Instead, it's a revolving line of credit, which means you can borrow as much or as little as you need – up to your approved limit – and reuse the credit as you repay it. You only pay interest on the amount you've actually withdrawn, and not the entire credit limit. This interest is calculated daily at a variable rate based on Canada’s Prime rate.

Home equity line of credit interest rates are often higher than variable mortgage rates and can fluctuate. While a variable mortgage might be priced as Prime – 0.50%, a HELOC is typically priced as Prime + a markup, and your lender can adjust that markup at their discretion.

3. Do I only have to make interest payments on a HELOC?

Yes, if you are using any portion of your home equity line of credit, you will need to make a monthly interest-only payment for doing so. These payments are usually withdrawn automatically from your bank account on the same day each month.

Since there’s no fixed repayment schedule for the principal, you’ll need to make extra payments voluntarily if you want to reduce your balance. This gives you flexibility, but it also requires discipline to avoid carrying long-term debt.

4. How does the Bank of Canada affect HELOC rates?

HELOC rates are a type of variable-rate debt, meaning they’re influenced by the benchmark Overnight Lending Rate set by the Bank of Canada, which lenders use to set their Prime rates. Like variable-rate mortgages, your HELOC rate will change whenever the central bank hikes or cuts interest rates. 

From July 2024 to March 2025, the Bank of Canada made a series of cuts, bringing the overnight rate down from 5.00% to 2.75%. In turn, this lowered banks’ Prime rates from 7.20% to 4.95%. The Bank then held rates steady in both April and June 2025.

Because HELOCs are typically priced as Prime + a markup, this series of rate cuts significantly reduced borrowing costs for HELOC users. For example, if your HELOC rate is Prime + 0.50%, your rate would have dropped from 7.70% to 5.45% over that period.

5. What do I need to apply for a HELOC?

To qualify for a HELOC, lenders assess your overall financial profile and the amount of equity you’ve built in your home. Here’s what you’ll typically need to provide:

• Proof of homeownership and property details: This includes your mortgage statement, title information, and property tax statements, as applicable. 
• Proof of equity: Lenders need to determine that you’ve at least 20% equity in your house. You may need to provide documents like a recent appraisal or agree to a new one arranged by the lender.
• Proof of income: This usually includes recent pay stubs, T4 slips, or your most recent Notice of Assessment (NOA) if you’re self-employed.
• A healthy credit score: Most lenders require a credit score of at least 680 to qualify for the best HELOC rates. A score of 600 is often the minimum to be considered at all.
• Passing the stress test: You’ll need to prove that you can afford the payments at either the BoC’s qualifying rate (currently 5.25%) or your contract rate + 2%, whichever is higher.
  

HELOC product types

HELOCs can either stand on their own or be combined with your mortgage, and the option you choose affects how your credit limit works, how you repay the debt, and how much flexibility you have as your equity grows.

• Stand-alone home equity line of credit: This is a separate line of credit that isn’t tied to your mortgage. You can borrow up to 65% of your home’s value, based on your income and available equity. But because it’s not linked to your mortgage, your credit limit doesn’t increase as you pay down your loan, it stays fixed unless you reapply.
• HELOC combined with a mortgage: Also referred to as a readvanceable mortgage, this product combines a HELOC with a mortgage. As you pay down your mortgage principal, your available HELOC credit automatically increases, giving you more borrowing power over time. You can also choose to make interest-only payments on the HELOC portion, while your mortgage follows its regular amortization schedule.

Should I get a 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. 

However, the same flexibility requires you to be disciplined about repayments to avoid getting into trouble down the road. Here are a few things to think about:

• 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 budget for how you intend to use the money you get from 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 financial trouble if you aren’t careful.

How to pay off a HELOC faster

While HELOCs only require interest payments by default, here are a few smart strategies to pay off your HELOC faster:

• Turn your HELOC into a fixed-term loan: Some lenders let you lock in a portion of your HELOC at a fixed rate with a structured amortization. If budgeting is a challenge, this can simulate a traditional loan and keep your payoff timeline on track.
• Use lump sums wisely: Apply any tax refunds, bonuses, or extra income directly to your HELOC. There are no prepayment penalties, so you can pay down your balance at any time.
• Switch to biweekly payments: Instead of making the usual interest-only monthly payments, make fixed biweekly principal plus interest payments. Over a year, that’s the equivalent of one extra monthly payment, and it goes entirely toward paying down your balance.
• Avoid “re-borrowing” creep: Because HELOCs replenish as you repay, it’s tempting to dip back in. Try restricting access (e.g. unlinking the HELOC from your debit card or banking app) to simulate a closed-end loan — especially if your original goal was one-time borrowing.
• Treat it like a loan, not a credit card: If you're using your HELOC for a one-time expense, act as if it's a fixed-term loan and budget for full repayment within a set timeline.

Also read: 

• Prime Rate Canada
• Overnight Lending Rate in Canada
• Fixed vs. variable mortgage rates
• Bank of Canada holds target rate at 4.5%
• How to choose between a refinance, a HELOC and a second mortgage