This page covers the home equity line of credit (HELOC) in Canada: home equity and the borrowing limits, HELOC rates, the HELOC calculator, and how a HELOC compares with a personal line of credit, a refinance and a home equity loan.
Home equity
Home equity is the portion of your home that you own. You can borrow against it through a home equity line of credit (HELOC), a home equity loan, a second mortgage, a refinance or, for homeowners usually aged 55 or older, a reverse mortgage. This page explains how equity is measured, the limits on borrowing against it and how the options differ. It is part of WealthNorth’s refinancing and home equity guide.
What home equity is
The Financial Consumer Agency of Canada (FCAC) defines home equity as the difference between your home’s appraised value and what you owe on your mortgage, your HELOC and any other loans and lines of credit secured by the home (FCAC, borrowing against home equity). A home appraised at $700,000 with a $350,000 mortgage and a $50,000 HELOC balance has $300,000 of equity, or 42.9% of its value.
According to the FCAC, equity goes up as you pay down your mortgage, your HELOC and other loans secured by the home, and if the home’s value increases. The home equity calculator works through how paydown and price changes add up over time.
How much you can borrow
- The revolving (non-amortizing) HELOC part can't exceed 65% of the home's value at a federally regulated lender.
- Under the Bank Act, a bank's loan to buy, renovate or improve a home, or a refinance of such a loan, together with any mortgage ranking equal to or ahead of it, can't exceed 80% of the home's value.
- Mortgage insurance can't lift an ordinary refinance above that limit: under the federal mortgage insurance rules, an insured high-ratio loan has to be for buying the home or for paying off an earlier uninsured low-ratio loan.
- The one insured refinance is for adding secondary suites: since January 15, 2025, a home you or a close relative live in can be refinanced with mortgage insurance up to 90% of its as-improved value to build additional units, up to 4 units in total, and the extra money can only pay for the construction, with no equity taken out.
- FCAC lists the equity you need: more than 35% for a standalone HELOC and at least 20% for a HELOC combined with a mortgage.
- The limits are measured against the home's value, which the lender usually sets with an appraisal.
The equity minimums are from FCAC, home equity lines of credit. The loan-to-value limits are federal rules for banks and other federally regulated lenders; lenders outside federal regulation work under other rules, and alternative mortgage lenders covers that market.
For a home appraised at $700,000 with a $300,000 mortgage:
- room under the combined limit: $700,000 × 80% − $300,000 = $260,000
- cap on the revolving HELOC part: $700,000 × 65% = $455,000
- HELOC combined with the mortgage, the lower of the two: $260,000
- standalone HELOC, where FCAC’s equity minimum keeps the HELOC and the mortgage together under 65% of the value: just under $700,000 × 65% − $300,000 = $155,000
Lenders also check that you can carry the payments. The FCAC notes you must pass a stress test to qualify for a HELOC at a bank. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. For an insured mortgage, CMHC caps your housing costs at 39% of gross income (GDS) and your housing costs plus other debt payments at 44% (TDS); lenders set their own limits for uninsured mortgages.
Ways to borrow against your equity
The descriptions for HELOCs, home equity loans, second mortgages and reverse mortgages are the FCAC’s; the cash-out refinance row and the borrowing limits for a bank follow the federal rules above.
| Option | How you get the money | Limit | Interest rate | Repayment |
|---|---|---|---|---|
| HELOC | As needed, up to a credit limit; you can repay and borrow again | Revolving part within the HELOC limit above | Variable; changes as market rates move | Your lender may require interest only, or part principal plus interest |
| Home equity loan | One lump sum; once repaid it can’t be borrowed again | Within the combined limit | Fixed or variable; generally higher than on a mortgage | Fixed payments of principal and interest on a fixed schedule |
| Second mortgage | One lump sum | Within the combined limit | Fixed or variable; generally higher than on the first mortgage | Its own payments, on top of the first mortgage |
| Cash-out refinance | One lump sum from a larger new mortgage | Within the combined limit | Your new mortgage rate | Your new mortgage payments |
| Reverse mortgage | A lump sum, part now and part later, or regular payments | Usually up to 55% of the appraised value | Fixed or variable; generally higher than on a mortgage | None until the loan is due |
A HELOC combined with a mortgage, sometimes called a readvanceable mortgage, gives you more available credit as you pay down the mortgage principal, according to the FCAC; a standalone HELOC doesn’t grow that way. Readvanceable mortgages covers the product. Side-by-side comparisons: HELOC vs refinance and mortgage vs home equity loan vs HELOC.
Costs of setting one up
The FCAC lists appraisal, title search, title insurance and legal fees as the usual costs of borrowing against equity, and says you may have to pay a new mortgage loan insurance premium. Breaking your current mortgage to refinance before the term ends can also bring a prepayment penalty; how mortgage penalties are calculated explains how lenders work it out.
Reverse mortgages
According to the FCAC, a reverse mortgage is for homeowners usually aged 55 or older, usually allows borrowing up to 55% of the home’s value, and needs no payments until the loan is due: when you move out or sell, when the last borrower dies, or if you default. The lender adds the interest to the balance, so what you owe grows over time (FCAC, reverse mortgages). A $200,000 reverse mortgage at an illustrative 7% compounded once a year grows to $393,430 after 10 years with no payments made; the lender’s contract sets the actual rate and compounding. The reverse mortgage guide and reverse mortgage calculator go further.
Shared equity
Shared equity is not borrowing: a partner pays part of the down payment in exchange for a share of the home’s value when it is sold. Shared equity in Canada covers the programs open today and the closed federal First-Time Home Buyer Incentive.
What people use home equity for
The FCAC lists managing unexpected expenses, consolidating debt and renovating among the reasons people take a HELOC. Each use has its own trade-offs:
- Debt consolidation. Moving higher-interest debt to a loan secured by your home can lower the interest rate but puts the home at risk; debt consolidation using home equity works through the numbers.
- Renovations. Home renovation loans compares a HELOC, a refinance and other ways to pay.
- Investing. Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. Using home equity to invest and the Smith Manoeuvre guide cover the strategies and their risks.
Risks
The FCAC lists these risks of a HELOC:
- if interest rates rise, the payments can become hard to manage, especially on a large balance;
- if you don’t pay it back, you could lose your home;
- it reduces your equity, which can affect your financial stability and limit your options if you want to sell;
- easy access to the money can tempt you to take on more debt than you can repay;
- if you pay only the interest, you won’t pay off the loan.
HELOC rates
A home equity line of credit (HELOC) is priced as the lender’s prime rate plus or minus a margin, so the best HELOC rate is the lowest margin a lender will offer you, before fees. This page explains how that pricing works, what five Canadian lenders publish about their HELOCs, and the criteria it uses to compare offers: the margin over prime, the fees, the borrowing limit and the payment terms. It is part of WealthNorth’s refinancing and home equity guide; the HELOC calculator estimates your limit and payments.
How a HELOC rate is set
The Financial Consumer Agency of Canada (FCAC) describes the pricing in three points: most HELOCs have a variable interest rate; a variable rate is typically based on the lender’s own prime rate; and you may be able to negotiate the rate with the lender. FCAC also notes that a lender may change a HELOC’s rate at any time, and that a federally regulated lender must give written notice within 30 days of making the change.
Each bank sets its own prime rate. The Bank of Canada publishes the chartered banks’ prime rate: 4.45% as of 2026-10-14. The Bank of Canada’s policy rate is 2.50%, after the decision announced October 28, 2026. The prime rate guide explains how the two are linked.
Example: a HELOC priced at prime plus 0.50 would cost 4.95% (4.45% + 0.50) at the Bank of Canada’s published prime. On a $100,000 balance that is $412.50 of interest a month ($100,000 × 4.95% ÷ 12). Your own margin comes from the lender’s offer.
What lenders publish about their HELOCs
Lenders publish how the rate is set, not one rate for everyone. The table quotes each lender’s own product page, read on October 1, 2026; product terms change, so check the lender’s page before applying.
| Product | How the rate is set | Borrowing limit stated by the lender |
|---|---|---|
| RBC Homeline Plan | The Royal Credit Line portion has a variable rate that may rise and fall with RBC’s prime rate | Up to 80% of the home’s value in total; the credit line grows as the mortgage is paid down, up to 65% |
| TD Home Equity FlexLine | The revolving portion uses a variable interest rate based on TD Prime Rate, with an interest-only minimum monthly payment | Up to 80% of the home’s value |
| Scotia Total Equity Plan (STEP) | Not stated as a single rate on the product page | Up to 80% at first, including up to 65% in line of credit products; the plan then steps down to 65% over 25 years |
| National Bank All-In-One | Rate: variable and corresponds to Prime plus a margin; a flat fee of $7.00 a month per account | Line of credit up to 65% of the property’s value, up to 80% combined with a mortgage loan |
| Tangerine Home Equity Line of Credit | Rate: the Tangerine Prime Rate plus or minus an adjustment factor, set out in the borrower’s agreement | Not stated on the product page |
The RBC, Scotiabank and National Bank products are readvanceable: the line of credit grows as the mortgage is repaid.
Criteria for comparing HELOC offers
- Margin over prime. Two “prime plus” offers can differ in the margin and in whose prime rate they use. Compare the full rate each lender quotes you.
- Fees. FCAC lists the fees a HELOC may involve: home appraisal fees, legal fees to register your home, title search fees, administration fees and monthly fees, plus cancellation and discharge fees if you close it. Ask each lender which apply and who pays them.
- Structure. A standalone HELOC is independent of your mortgage; a HELOC combined with a mortgage (readvanceable) has to be with the lender that holds the mortgage, and its available credit grows as you repay the mortgage, according to FCAC.
- Payment terms. FCAC says a lender may require payments of only the interest, or of principal and interest. An interest-only minimum keeps the payment low but doesn’t reduce the balance.
- What the lender will ask for. FCAC lists proof of home ownership, your mortgage details, a home appraisal and a lawyer (or notary in Quebec) to register the home as collateral. Your credit score and income also affect the offer.
How much you can borrow
At a federally regulated lender, two limits apply: the revolving part of a HELOC can't exceed 65% of the home's value, and everything borrowed against the home (the mortgage plus the HELOC, or a refinanced mortgage) can't exceed 80% of its value. HELOC room is therefore the lower of 80% of the value minus the mortgage and 65% of the value. Mortgage insurance can't take a refinance above 80%, except a refinance to build secondary suites that takes no equity out. FCAC lists the equity you need: more than 35% for a standalone HELOC and at least 20% for a HELOC combined with a mortgage.
Example: a $700,000 home with $350,000 left on the mortgage.
| Structure | Total borrowing allowed | Room left after the $350,000 mortgage |
|---|---|---|
| Standalone HELOC (more than 35% equity left) | Just under $455,000 ($700,000 × 65%) | Just under $105,000 |
| HELOC combined with the mortgage (20% equity left) | $560,000 ($700,000 × 80%) | $210,000, with the revolving part capped at $455,000 |
The lender sets the home’s value, usually with an appraisal, and can approve less than these amounts.
Qualifying for a HELOC
FCAC says you must pass a stress test to qualify for a HELOC at a bank. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. Lenders also check your debt service ratios; the GDS and TDS guide explains how they are calculated, and the stress test guide shows the qualifying rate at current rates.
Rate risk
A variable HELOC rate moves when the lender changes its prime rate, which FCAC says may happen when the Bank of Canada changes its policy rate. The policy rate peaked at 5.00% on July 12, 2023 and is 2.50% now, a gap of 2.50 percentage points.
Example: if a HELOC rate rose by that 2.50-point gap, a $100,000 balance would cost $2,500 more interest a year ($100,000 × 2.50%).
FCAC lists rising rates among the risks of a HELOC, along with losing your home if you don’t repay, easy access to credit, and that paying only the interest won’t pay off the loan. OSFI’s Guideline B-20 also expects federally regulated lenders to review a HELOC’s authorized amount when the home’s value falls materially or the borrower’s finances change materially, so a limit isn’t guaranteed to stay where it was set.
Common uses and their trade-offs
Renovations in stages. Interest is charged only on the amount drawn, from the day it is drawn (FCAC), which fits costs paid over several months. Renovation financing options are compared in home renovation loans.
Consolidating debt. Moving higher-rate debt to a HELOC lowers the rate but secures the debt on your home and, with an interest-only minimum, sets no payoff date. Debt consolidation using home equity covers the options.
Borrowing to invest. Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. To come out ahead, the investments’ after-tax return has to exceed the after-tax cost of the interest: compare both sides after tax, not a pre-tax return with an after-tax cost.
Example: at a 6.00% HELOC rate and a 40% marginal tax rate, deductible interest costs 3.60% after tax (6.00% × (1 − 0.40)). An investment paying fully taxable interest income keeps 3.60% of a 6.00% return after the same 40% tax, so it only breaks even at a pre-tax return of 6.00%, before any allowance for risk.
The Smith Manoeuvre guide covers the readvanceable-mortgage version of this strategy.
A standby credit line. A HELOC you don’t draw on carries no interest, though FCAC lists administration and monthly fees among the costs a HELOC can have.
HELOC calculator
A home equity line of credit (HELOC) is revolving credit secured by your home: you can borrow up to a limit, repay and borrow again, and you pay interest only on the amount you have drawn. This calculator estimates your maximum HELOC limit, how much of it is still available, and the monthly interest on what you have drawn. It is part of our refinancing and home equity guide. To compare a HELOC with other ways of borrowing against your home, see mortgage vs home equity loan vs HELOC and HELOC vs refinance.
How much you can borrow
At a federally regulated lender, two limits apply: the revolving part of a HELOC can't exceed 65% of the home's value, and everything borrowed against the home (the mortgage plus the HELOC, or a refinanced mortgage) can't exceed 80% of its value. HELOC room is therefore the lower of 80% of the value minus the mortgage and 65% of the value. Mortgage insurance can't take a refinance above 80%, except a refinance to build secondary suites that takes no equity out. The full limits are in the home equity guide.
The Financial Consumer Agency of Canada (FCAC) describes two kinds of HELOC:
- Combined with a mortgage (also called a readvanceable mortgage): set up with the lender that holds your mortgage, and the available credit increases as you pay down the mortgage principal.
- Standalone: separate from your mortgage, possibly with a different lender, and the available credit doesn’t grow as you pay the mortgage down.
FCAC’s equity example is a $500,000 home with $200,000 left on the mortgage: equity of $300,000, which is 60% of its value. Applying the limits above to that home:
- 65% of value: $325,000
- 80% of value minus the mortgage: $200,000
- Maximum HELOC combined with the mortgage, the lower of the two: $200,000
- Maximum standalone HELOC, 65% of value minus the mortgage: $125,000
The standalone figure treats the HELOC and the mortgage ahead of it as sharing the HELOC limit, which is what FCAC’s equity minimum for a standalone HELOC implies.
FCAC adds that the lender may value your home with an appraisal or by its purchase price, and that you can ask for a lower limit than you are approved for.
HELOC calculator
The rate box starts at the Bank of Canada’s chartered-bank prime rate, 4.45% as of 2026-10-14. Add the margin your lender quotes (FCAC’s example is prime plus 1%).
What the calculator computes:
- Combined with a mortgage: limit = the lower of the HELOC limit (a share of the home’s value) and the combined limit minus the mortgage, both from the rule above, never below $0.
- Standalone: limit = the HELOC limit minus the mortgage, never below $0.
- Still available = limit − amount drawn.
- Monthly interest = amount drawn × annual rate ÷ 12, an approximation: FCAC notes that the lender charges interest as soon as you take money out, so your statement depends on when you drew.
What a HELOC costs
FCAC says most HELOCs have a variable rate, typically based on the lender’s prime rate; its example is prime plus 1% with a prime rate of 5.85%, for 6.85%. The lender can change the rate at any time, and a federally regulated lender must tell you in writing within 30 days. Current rates from specific lenders are on HELOC rates in Canada.
$100,000 drawn at prime plus 1%, using the prime rate above: 4.45% + 1% = 5.45%, assuming the rate doesn’t change.
- Interest only: $100,000 × 5.45% ÷ 12 = $454.17 a month, and the balance stays at $100,000.
- Repaid over 20 years (240 monthly payments, interest at the annual rate ÷ 12 each month): payment = $100,000 × i ÷ (1 − (1 + i)−240), with i = 5.45% ÷ 12, = $685.07 a month, or $64,416 of interest over the 20 years.
- If the rate rose by 2 percentage points, the interest-only payment on the same $100,000 would rise by $100,000 × 2% ÷ 12 = $166.67 a month.
(Each percentage point of rate on $100,000 is $100,000 × 1% ÷ 12 = $83.33 a month, which is why the interest-only line multiplies the rate by 83.33.)
FCAC points out that if you only pay the interest, you won’t pay off the loan. Other costs it lists for setting up a HELOC are home appraisal fees, legal fees to register your home, title search fees, administration fees and monthly fees; cancelling can bring cancellation and discharge fees.
Uses and risks
FCAC lists managing unexpected expenses, consolidating debt and renovating your home as uses a HELOC may suit; see debt consolidation using home equity and renovation loans. The risks it lists:
- if interest rates increase, you may have a hard time repaying, especially after large withdrawals;
- if you don’t pay back what you owe, the lender may take possession of your home, and if you sell, the HELOC has to be repaid;
- borrowing reduces your home equity, which can affect your financial stability and your options if you want to sell;
- easy access to funds may tempt you to take on more debt than you can pay back.
Tax on HELOC interest
Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. Borrowing against a readvanceable mortgage to invest relies on this rule.
A HELOC or a personal line of credit
A home equity line of credit (HELOC) and a personal line of credit work the same way day to day: you’re approved for a limit, draw what you need, pay interest only on what you’ve drawn, and the room comes back as you repay. The difference is security. A HELOC is secured by your home; a personal line of credit is unsecured. That one difference drives the rest: the rate, the limit, the approval steps and what’s at risk. This page is part of WealthNorth’s refinancing and home equity guide.
Side-by-side comparison
Each row is from the Financial Consumer Agency of Canada’s (FCAC) pages on home equity lines of credit and lines of credit.
| Feature | HELOC | Personal (unsecured) line of credit |
|---|---|---|
| Security | Your home; if you don’t repay, the lender may take possession of it | No asset secures it |
| Rate | Most are variable, typically based on the lender’s prime rate | Usually variable |
| Rate compared with other credit | Usually lower than other loans and lines of credit | Usually lower than a credit card or personal loan |
| Limit | Set by the federal loan-to-value limits below and your equity | Set by the lender from your income, other debts and credit report and score |
| What you need | Home equity: more than 35% for a standalone HELOC, 20% if combined with a mortgage | Lenders usually require a minimum household income |
| Approval steps | Proof of ownership, mortgage details, often an appraisal, and a lawyer or notary to register the home as collateral; a stress test at a bank | Identity, income, debts and credit review |
| Fees | May include appraisal, legal, title search, administration and monthly fees | Some charge registration or administration fees; some don’t |
| Minimum payment | Interest only, or principal and interest, as the lender requires | Usually equal to the monthly interest |
| When you sell your home | The HELOC has to be repaid | Not affected |
What the rate gap costs
Each lender sets its own rates, and FCAC says your credit score affects the rate on a line of credit, so the gap depends on your offers. The example below uses assumed margins over the Bank of Canada’s published prime rate of 4.45% (as of 2026-10-14) to show how the cost scales with the balance.
Example: a HELOC at prime plus 0.50 (4.95%) and a personal line of credit at prime plus 3.50 (7.95%), a gap of 3.00 percentage points. Annual interest on a balance carried for a full year is the balance × the rate.
| Balance | HELOC interest a year | Personal line of credit interest a year | Difference |
|---|---|---|---|
| $10,000 | $495 | $795 | $300 |
| $25,000 | $1,238 | $1,988 | $750 |
| $50,000 | $2,475 | $3,975 | $1,500 |
| $100,000 | $4,950 | $7,950 | $3,000 |
Setup costs work against the HELOC on a small balance. If opening it cost $1,000 in appraisal and legal fees, the interest saved would cover that in 3.3 years on a $10,000 balance ($1,000 ÷ $300) and 0.7 years on a $50,000 balance ($1,000 ÷ $1,500).
Both rates are usually variable, so both move when the lender changes its prime rate. FCAC lists rising rates as a risk of both products.
Borrowing limits
At a federally regulated lender, two limits apply: the revolving part of a HELOC can't exceed 65% of the home's value, and everything borrowed against the home (the mortgage plus the HELOC, or a refinanced mortgage) can't exceed 80% of its value. HELOC room is therefore the lower of 80% of the value minus the mortgage and 65% of the value. Mortgage insurance can't take a refinance above 80%, except a refinance to build secondary suites that takes no equity out. FCAC’s equity minimums make the standalone limit lower: with more than 35% equity required, everything secured on the home has to stay under 65% of its value (100% − 35%). The best HELOC rates guide works through both limits for one home, and the HELOC calculator estimates yours.
A personal line of credit has no formula tied to property. FCAC says the lender reviews your income, your debts with other institutions and your credit report and score, and usually requires a minimum household income; your credit score also affects the rate.
Qualifying
A HELOC goes through a mortgage-style approval. FCAC says you must pass a stress test to qualify for a HELOC at a bank. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. The lender may also ask for proof of ownership, your mortgage details and an appraisal, and a lawyer (or notary in Quebec) registers the home as collateral. A personal line of credit skips the property steps: no appraisal and no registration on title.
Interest-only payments
FCAC says a line of credit’s minimum payment is usually equal to the monthly interest, and that paying only the interest means you’ll never pay off the debt; a HELOC lender may set the same minimum. Paying a fixed amount above the interest sets a payoff date.
Example: a $50,000 balance at the 4.95% HELOC rate above.
- Interest-only: $206.25 a month ($50,000 × 4.95% ÷ 12), or $24,750 over ten years, with $50,000 still owing.
- $750 a month: paid off in about 78 months, with about $8,590 of interest in total (months = log(1 ÷ (1 − monthly rate × $50,000 ÷ $750)) ÷ log(1 + monthly rate), at a constant rate).
When each one fits
A HELOC fits a homeowner with enough equity who expects to borrow a larger amount over a longer period, such as renovations paid in stages or consolidating higher-rate debt, and who accepts that the home secures the debt. A readvanceable HELOC combined with a mortgage is also the vehicle for the Smith Manoeuvre.
A personal line of credit fits someone who doesn’t own a home or doesn’t want to pledge it, needs a smaller amount, wants to skip the appraisal and legal steps, or wants to leave home equity available for something else.
Interest deductibility doesn’t depend on which one you use. Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains.
Other options
- A personal loan has fixed payments of principal and interest and a set end date. FCAC says a line of credit usually has a lower rate than a credit card or personal loan.
- A refinance adds the amount to your mortgage at a mortgage rate, with new amortizing payments; see HELOC vs refinance.
- A balance transfer credit card can carry a promotional rate for a set period; the balance transfer calculator compares offers.
A HELOC or a refinance
A HELOC and a refinance are two ways to borrow against a home you already own. A home equity line of credit (HELOC) gives you a revolving limit to draw on as needed; a refinance replaces your mortgage with a larger one and pays out the difference as a lump sum. This page compares them on structure, rate, limits, qualifying and cost. It is part of WealthNorth’s refinancing and home equity guide; how to refinance your mortgage walks through the refinance process, and the HELOC calculator estimates a HELOC limit.
Side-by-side comparison
| Feature | HELOC | Refinance |
|---|---|---|
| What you get | A revolving credit limit: draw, repay and draw again | A new, larger mortgage; the difference is paid out once |
| Rate | Most are variable, typically based on the lender’s prime rate (FCAC) | Fixed or variable, for the term you choose |
| Payments | Interest only, or principal and interest, as the lender requires (FCAC) | Regular principal and interest over the new amortization |
| Interest charged on | Only the amount drawn, from the day it’s drawn | The whole new mortgage balance |
| Repaying early | FCAC: you can make payments or repay the balance at any time | A closed mortgage can carry a prepayment penalty (below) |
| Rate changes | FCAC: the lender may change the rate at any time, with written notice | Fixed for the term on a fixed-rate mortgage |
| Limit | Set by the federal loan-to-value rules below and your equity | Set by the same rule, counting the whole new mortgage |
| Breaking the current mortgage | Not needed for a standalone HELOC | Needed if you refinance before the term ends |
The limits in the table come from federal rules: At a federally regulated lender, two limits apply: the revolving part of a HELOC can't exceed 65% of the home's value, and everything borrowed against the home (the mortgage plus the HELOC, or a refinanced mortgage) can't exceed 80% of its value. HELOC room is therefore the lower of 80% of the value minus the mortgage and 65% of the value. Mortgage insurance can't take a refinance above 80%, except a refinance to build secondary suites that takes no equity out. FCAC lists the equity you need: more than 35% for a standalone HELOC and at least 20% for a HELOC combined with a mortgage. The one insured refinance is for adding secondary suites: since January 15, 2025, a home you or a close relative live in can be refinanced with mortgage insurance up to 90% of its as-improved value to build additional units, up to 4 units in total, and the extra money can only pay for the construction, with no equity taken out. Secondary suite incentives covers that program.
How the rates compare
A HELOC rate is the lender’s prime plus or minus a margin it sets for you; a refinance gets a mortgage rate for the term you pick. The Bank of Canada publishes a benchmark for each: the chartered banks’ prime rate was 4.45% as of 2026-10-14, and the average rate on new uninsured fixed-rate mortgages with terms of 5 years and over was 4.49% in July 2026.
Example: $100,000 for one year. A HELOC at prime plus 0.50 (4.95%) is 0.46 percentage points above the average new fixed rate above. Interest-only, the HELOC costs $4,950 a year ($100,000 × 4.95%); $100,000 added to a mortgage at 4.49% over 25 years adds about $553 to the monthly payment, part of which repays principal (payment = $100,000 × i × (1 + i)300 ÷ ((1 + i)300 − 1), where i = (1 + rate ÷ 2)1/6 − 1 is the monthly rate under the semi-annual compounding Canadian fixed-rate mortgages use). Your own rates come from the lenders’ offers.
The rate is only part of the cost. Refinancing a closed mortgage before its term ends can trigger a penalty: Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. The mortgage penalty guide shows how it’s worked out. A HELOC has its own setup costs: FCAC lists appraisal, legal, title search, administration and monthly fees among those a HELOC may involve.
Qualifying
Both go through a full credit approval. FCAC says you must pass a stress test to qualify for a HELOC at a bank, and a refinance is a new mortgage. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. Lenders also check your debt service ratios on the new borrowing, using your current income and debts, so a drop in income since the original mortgage matters for either one.
The risk of a reduced HELOC limit
A refinance fixes the amount you owe on day one. A HELOC limit can change: OSFI’s Guideline B-20 expects federally regulated lenders to review a HELOC’s authorized amount when the home’s value falls materially or the borrower’s finances change materially. FCAC also says a lender may change a HELOC’s rate at any time, giving written notice within 30 days of the change at a federally regulated lender. The HELOC agreement sets out the lender’s other rights. So an unused HELOC isn’t a guaranteed source of funds in an emergency.
Situations each one suits
| Situation | Refinance | HELOC |
|---|---|---|
| A known, one-time amount | Lump sum at a mortgage rate, repaid on a schedule | Possible, but the balance stays until you choose to repay it |
| Costs spread over months (staged renovation) | Interest on the full amount from day one | Draw as bills come in; interest only on what’s drawn |
| Wanting a fixed rate | Available | The revolving part is variable at the lenders on the HELOC rates page that state a rate type (Scotiabank’s STEP page doesn’t); some plans, such as TD’s, add an optional term portion that works like a regular mortgage |
| Mid-term, with a large penalty | Penalty adds to the cost | No need to break the mortgage |
| Wanting forced repayment | Built in | Only if the lender requires principal payments or you pay more than an interest-only minimum |
| Borrowing to invest | Possible; the invested part must be traceable | Readvanceable HELOCs are used for the Smith Manoeuvre |
Borrowing to invest
Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. A readvanceable mortgage, a HELOC combined with a mortgage whose available credit grows as you repay the mortgage, lets you re-borrow each payment’s principal and invest it; this is the Smith Manoeuvre. The Smith Manoeuvre guide covers the mechanics and the risks, and using home equity to invest compares HELOC investing with a cash-out refinance. To come out ahead, the after-tax return on the investments has to exceed the after-tax cost of the interest.
A HELOC, a home equity loan or a mortgage
A first mortgage, a home equity loan and a home equity line of credit (HELOC) are all secured by your home, but they pay out, charge interest and get repaid differently. This page compares the three, including the choice between a home equity loan and a HELOC when you already own your home. It is part of WealthNorth’s refinancing and home equity guide; the home equity guide explains how much equity you have.
Quick comparison
The home equity loan and HELOC columns come from the Financial Consumer Agency of Canada’s (FCAC) pages on borrowing against home equity and home equity lines of credit.
| Feature | First mortgage | Home equity loan | HELOC |
|---|---|---|---|
| How you get the money | Lump sum at purchase or refinance | One-time lump sum | Draw as needed up to a limit, repay, draw again |
| Rate | Fixed or variable, for a term | Fixed or variable; generally higher than a mortgage | Variable; changes as market rates move |
| Payments | Principal and interest over the amortization | Fixed amounts of principal and interest on a fixed schedule | Interest only, or principal and interest, as the lender requires |
| Interest charged on | The whole balance | The whole amount borrowed | Only the amount drawn |
| Borrow again after repaying | Some lenders let you re-borrow amounts you prepaid during the term (FCAC) | No | Yes |
| Repaying early | A closed mortgage can carry a penalty | Set by the loan agreement | FCAC: you can repay the balance at any time |
| Fees | Purchase closing costs, or the costs of breaking and replacing the mortgage on a refinance | Appraisal, title search, title insurance, legal | Appraisal, title search, title insurance, legal; some HELOCs add administration or monthly fees |
FCAC lists second mortgages as a separate product: a second loan on your home with the same features as a mortgage, usually at a higher rate than a first mortgage because it is riskier for the lender.
How each one works
First mortgage. You borrow to buy a home (or replace your mortgage with a larger one through a refinance), with a rate fixed or variable for a term and payments of principal and interest over the amortization. The minimum down payment is 5% of the first $500,000 and 10% of the rest for homes under $1.5 million, and 20% at $1.5 million or more.
Home equity loan. You borrow a set amount against equity you already have and get it as a one-time lump sum. You pay interest on the total amount from the start and repay fixed amounts on a fixed schedule; once it’s repaid, it’s closed. The home equity loan guide covers lenders and terms, and the second mortgage calculator estimates payments.
HELOC. A revolving credit limit secured by your home. FCAC says you pay interest only on the amount you borrow, can repay at any time, and that if you only pay the interest, you won’t pay off the loan. If you sell the home, the HELOC has to be repaid. Finding the best HELOC rate covers how lenders price them.
Rates and what $100,000 costs
FCAC describes the order of rates, not the numbers: home equity loan rates are generally higher than mortgage rates, and a HELOC rate is variable, typically based on the lender’s prime rate. The Bank of Canada publishes benchmarks for the other two: the average rate on new fixed-rate mortgages of 5 years and over was 4.49% uninsured and 4.05% insured in July 2026, and the chartered banks’ prime rate was 4.45% as of 2026-10-14.
Example: $100,000 over five years. Assumed rates: a home equity loan at 6.50% fixed over 10 years, compounded semi-annually like a Canadian fixed-rate mortgage, and a HELOC at prime plus 0.50 (4.95%) with only the interest paid.
| After 5 years | Home equity loan (6.50% fixed) | HELOC (4.95%, interest only) |
|---|---|---|
| Monthly payment | $1,131 | $413 |
| Total paid | $67,866 | $24,750 |
| Of which interest | $25,794 | $24,750 |
| Balance still owing | $57,928 | $100,000 |
The loan’s balance after 60 payments is $100,000 × (1 + i)60 − payment × ((1 + i)60 − 1) ÷ i, with i = (1 + 0.065 ÷ 2)1/6 − 1. The HELOC’s lower payment comes from paying no principal: its balance is unchanged after five years.
How much you can borrow
At a federally regulated lender, two limits apply: the revolving part of a HELOC can't exceed 65% of the home's value, and everything borrowed against the home (the mortgage plus the HELOC, or a refinanced mortgage) can't exceed 80% of its value. HELOC room is therefore the lower of 80% of the value minus the mortgage and 65% of the value. Mortgage insurance can't take a refinance above 80%, except a refinance to build secondary suites that takes no equity out. FCAC adds the equity each HELOC type needs (more than 35% for a standalone HELOC, 20% for one combined with a mortgage) and says a home equity loan may be up to 80% of the home’s value. Under the Bank Act, a bank's loan to buy, renovate or improve a home, or a refinance of such a loan, together with any mortgage ranking equal to or ahead of it, can't exceed 80% of the home's value. A purchase adds one more condition. With less than 20% down you need mortgage loan insurance.
Example: a $700,000 home with $350,000 left on the mortgage.
| Product added to the $350,000 mortgage | Total borrowing allowed | Available to borrow |
|---|---|---|
| Home equity loan | $560,000 ($700,000 × 80%) | $210,000 |
| Standalone HELOC | Just under $455,000 ($700,000 × 65%) | Just under $105,000 |
| HELOC combined with the mortgage | $560,000 ($700,000 × 80%) | $210,000 |
Lenders set the home’s value, usually with an appraisal, and can approve less.
Qualifying
OSFI’s Guideline B-20 covers HELOCs and equity loans as well as mortgages, and FCAC says you must pass a stress test to qualify for a HELOC at a bank. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. The lender also checks your debt service ratios with the new payment included, your income and your credit score. The B lender guide covers lenders outside the big banks.
Fees and prepayment
FCAC lists appraisal, title search, title insurance and legal fees for home equity loans and HELOCs; some HELOCs also charge administration or monthly fees, and closing one can involve cancellation and discharge fees. National Bank’s All-In-One, for example, charges a flat fee of $7.00 a month per account (as of October 1, 2026).
Paying off early differs most. A HELOC can be repaid at any time, according to FCAC. A closed mortgage can carry a penalty: Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. A home equity loan’s prepayment terms are in its loan agreement.
Readvanceable mortgages: a mortgage and HELOC together
FCAC describes a HELOC combined with a mortgage, also called a readvanceable mortgage: it is with the lender that holds your mortgage, and its available credit increases as you pay down the mortgage principal. Several banks sell one under their own name. These are their own descriptions, read on October 1, 2026:
| Product | What the lender says about the limits |
|---|---|
| RBC Homeline Plan | Borrow up to 80% of the home’s value; the credit line grows as the mortgage is paid down, up to 65% |
| Scotia Total Equity Plan (STEP) | Up to 80% at first, including up to 65% for line of credit products, stepping down to 65% over 25 years |
| National Bank All-In-One | Line of credit up to 65% of the property’s value, up to 80% combined with a mortgage loan; repaid principal becomes available on the line of credit automatically |
Because the credit line refills as you repay, total debt can stay at the original level unless you pay the line down too. The structure is the basis of the Smith Manoeuvre.
Which one fits which situation
| Situation | Product that matches the way the money is needed | Why |
|---|---|---|
| Buying a home | First mortgage | Allows the smallest down payment; FCAC notes a standalone HELOC can also be used to buy a home, but needs a higher down payment |
| One known amount, wanting fixed payments | Home equity loan, or a refinance | Lump sum with a set repayment schedule |
| Costs spread over months or uncertain | HELOC | Draw as needed; interest only on what’s drawn |
| Consolidating higher-rate debt | Home equity loan or HELOC | A loan’s fixed payments force repayment; a HELOC with an interest-only minimum doesn’t |
| Mid-term on a mortgage with a large penalty | Home equity loan or standalone HELOC | Leaves the first mortgage in place |
| Borrowing to invest | Readvanceable HELOC or a separate investment draw | Keeps the invested money traceable for the interest deduction |
HELOC vs refinance compares the HELOC with replacing your mortgage, and debt consolidation using home equity covers consolidation.
Risks of each
| Risk | First mortgage | Home equity loan | HELOC |
|---|---|---|---|
| Rate changes | At renewal, or during the term on a variable rate | None during a fixed-rate term | The rate can change at any time (FCAC) |
| Paying down the debt | Built into the payments | Built into the payments | Only if the lender requires principal payments or you pay more than the interest |
| Borrowing more than planned | Fixed amount | Fixed amount | FCAC: easy access may tempt you to take on more debt |
| Limit or terms changing | Fixed for the term | Fixed by the agreement | OSFI expects lenders to review the limit if the home’s value falls materially or your finances change materially |
| Losing the home on default | Yes | Yes | Yes |
Interest deductibility
Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. The same test applies whether the money comes from a mortgage, a home equity loan or a HELOC, and deducting mortgage interest on a rental explains the rental case.
Related pages
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 29, 2026. How we check facts.
- Bank of Canada: Data table
- Bank of Canada: Interest rates posted for selected products by the major chartered banks
- Bank of Canada: Data table
- Bank of Canada: Fad press release 2026 10 28
- Bank of Canada: Bank of Canada raises policy rate 25 basis points, continues quantitative tightening
- Bank of Canada: Mortgage rates, fixed 5 years and over: uninsured residential mortgages, funds advanced (data series)
- Bank of Canada: Mortgage rates, fixed 5 years and over: insured residential mortgages, funds advanced (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Data table
- Canada Revenue Agency: Line 22100 – Carrying charges, interest expenses and other expenses
- Canada Revenue Agency: Income Tax Folio S3-F6-C1, Interest Deductibility
- CMHC: CMHC Refinance for Building Secondary Suites
- CMHC: CMHC Purchase
- CMHC: Calculating GDS / TDS
- Financial Consumer Agency of Canada: Borrowing against home equity
- Financial Consumer Agency of Canada: Home equity lines of credit
- Financial Consumer Agency of Canada: Breaking your mortgage contract
- Financial Consumer Agency of Canada: Mortgage fees: Prepayment penalties
- Financial Consumer Agency of Canada: How much you need for a down payment
- Justice Laws (Canada): Bank Act
- Justice Laws (Canada): Eligible Mortgage Loan Regulations
- National Bank: Home Equity Line of Credit (HELOC) | National Bank
- OSFI: Residential mortgage underwriting practices and procedures
- OSFI: OSFI exempts uninsured mortgage straight switches from the prescribed MQR and…
- OSFI: Amendments to the minimum qualifying rate for uninsured mortgages
- RBC: RBC Homeline Plan - Mortgage & Home Equity Line - RBC Royal Bank
- RBC: Variable Rate Mortgage | RBC Royal Bank of Canada
- Scotiabank: Scotia Total Equity Plan (STEP)-Flexible Borrowing Plan | Scotiabank Canada
- Tangerine: Home Equity Line of Credit | Tangerine
- TD: TD Home Equity FlexLine (HELOC) – TD Canada Trust