A home equity loan lets you convert the equity you’ve built in your home into cash — without selling. Here’s everything Canadian homeowners need to know about how home equity loans work, what they cost, and when they make sense.
What is a home equity loan?
A home equity loan (HEL) is a fixed-rate, lump-sum loan secured against your home’s equity. You receive the full loan amount upfront and repay it in equal monthly installments over a set term.
| Feature | Detail |
|---|---|
| Loan type | Lump-sum, closed |
| Interest rate | Fixed (most common) or variable |
| Repayment | Equal monthly payments (principal + interest) |
| Collateral | Your home |
| Registration | Registered on title as a second charge (behind your first mortgage) |
| Maximum LTV | 80% combined (first mortgage + HEL) at A-lenders |
| Typical terms | 1–10 years |
How much equity do you have?
Your accessible equity is the difference between your home’s current value and what you owe, capped at 80% LTV.
Equity calculation formula
Accessible equity = (Home value × 80%) – Outstanding mortgage balance
Examples by home value
| Home Value | Mortgage Owing | Available Equity (80% LTV) | Maximum HEL |
|---|---|---|---|
| $400,000 | $300,000 | $320,000 – $300,000 | $20,000 |
| $500,000 | $350,000 | $400,000 – $350,000 | $50,000 |
| $600,000 | $350,000 | $480,000 – $350,000 | $130,000 |
| $700,000 | $400,000 | $560,000 – $400,000 | $160,000 |
| $800,000 | $450,000 | $640,000 – $450,000 | $190,000 |
| $1,000,000 | $500,000 | $800,000 – $500,000 | $300,000 |
| $1,200,000 | $600,000 | $960,000 – $600,000 | $360,000 |
Current home equity loan rates in Canada (2026)
| Lender Type | Typical Rate Range | LTV Limit | Minimum Credit Score |
|---|---|---|---|
| Big 5 banks | 6.50%–8.00% | 80% | 680+ |
| Credit unions | 6.00%–7.50% | 80% | 650+ |
| Monoline lenders | 6.50%–8.50% | 80% | 680+ |
| B-lenders | 8.00%–12.00% | 80%–85% | 550+ |
| Private lenders | 10.00%–15%+ | 65%–75% | No minimum |
Why are HEL rates higher than mortgage rates? Home equity loans are registered as a second charge on your property title. If you default and the home is sold, the first mortgage gets repaid first. The second-position lender takes on more risk and charges accordingly.
Monthly payment examples
$50,000 home equity loan
| Term | Rate | Monthly Payment | Total Interest Paid |
|---|---|---|---|
| 5 years | 6.50% | $978 | $8,702 |
| 5 years | 8.00% | $1,014 | $10,844 |
| 10 years | 6.50% | $568 | $18,165 |
| 10 years | 8.00% | $607 | $22,804 |
$100,000 home equity loan
| Term | Rate | Monthly Payment | Total Interest Paid |
|---|---|---|---|
| 5 years | 6.50% | $1,957 | $17,404 |
| 5 years | 8.00% | $2,028 | $21,688 |
| 10 years | 6.50% | $1,135 | $36,331 |
| 10 years | 8.00% | $1,213 | $45,609 |
$200,000 home equity loan
| Term | Rate | Monthly Payment | Total Interest Paid |
|---|---|---|---|
| 5 years | 6.50% | $3,913 | $34,808 |
| 5 years | 8.00% | $4,056 | $43,376 |
| 10 years | 6.50% | $2,271 | $72,661 |
| 10 years | 8.00% | $2,426 | $91,217 |
How to qualify for a home equity loan
| Requirement | A-Lender Standard | B-Lender Standard |
|---|---|---|
| Home equity | Minimum 20% (combined LTV ≤80%) | Minimum 15%–20% |
| Credit score | 680+ | 550+ |
| Debt service ratios | GDS ≤39%, TDS ≤44% | GDS ≤50%, TDS ≤55% |
| Income verification | Full documentation (T4, NOA, pay stubs) | Stated income available |
| Property type | Standard residential | More flexible |
| Property appraisal | Required | Required |
| Employment | Stable employment or 2+ years self-employed | Flexible |
Documents you’ll need
- Government-issued photo ID
- Proof of income (T4, pay stubs, NOA, T1 General for self-employed)
- Current mortgage statement showing balance and payment
- Property tax bill
- Recent bank statements (3–6 months)
- Property appraisal (lender will order this)
Costs beyond the interest rate
| Cost | Typical Amount | When You Pay |
|---|---|---|
| Appraisal fee | $300–$500 | At application |
| Legal fees | $800–$2,000 | At closing |
| Title search | $100–$300 | At closing |
| Title insurance | $200–$500 | At closing |
| Lender fee (B-lender) | 1%–3% of loan amount | Deducted from proceeds |
| Broker fee (B-lender/private) | 0.5%–2% of loan amount | Deducted from proceeds or paid separately |
| Discharge fee | $200–$400 | At payoff |
Setup cost example: $100,000 HEL
| Cost | A-Lender | B-Lender |
|---|---|---|
| Appraisal | $400 | $400 |
| Legal fees | $1,200 | $1,500 |
| Title insurance | $300 | $300 |
| Lender fee | $0 | $1,500 (1.5%) |
| Broker fee | $0 | $1,000 (1%) |
| Total setup cost | ~$1,900 | ~$4,700 |
Common uses for a home equity loan
| Purpose | Why HEL Makes Sense | Caution |
|---|---|---|
| Home renovations | One-time cost; potential to increase home value | Ensure ROI — not all renovations add value |
| Debt consolidation | Replace high-interest debt (20%+ credit cards) with 6%–8% | Only works if you stop accumulating new debt |
| Education | Large, known cost; lower rate than student line of credit | Consider government student loans first (interest-free while studying) |
| Emergency fund | Bridge unexpected large expenses | HEL is not flexible — HELOC may be better for emergencies |
| Investment | Known upfront amount for portfolio investment | Interest may be tax-deductible (consult tax professional) |
| Business startup | Lower rate than commercial lending | Your home is at risk if the business fails |
Home equity loan vs other options
| Feature | Home Equity Loan | HELOC | Mortgage Refinance | Personal Loan |
|---|---|---|---|---|
| Disbursement | Lump sum | Revolving | Lump sum | Lump sum |
| Interest rate | Fixed (6%–8%) | Variable (prime + 0.5%–2%) | Fixed or variable (4%–5.5%) | Fixed (8%–15%) |
| Rate type | Fixed | Variable | Fixed or variable | Fixed |
| Payments | Fixed monthly | Interest-only minimum | Fixed monthly | Fixed monthly |
| Access to funds | One-time | Ongoing | One-time | One-time |
| Setup costs | $1,500–$5,000 | $0–$1,000 | $2,000–$5,000+ (penalty to break) | Minimal |
| Registration | Second charge on title | First or second charge | First charge | Unsecured |
| Max LTV | 80% combined | 65% (HELOC only) / 80% combined | 80% | N/A (unsecured) |
| Best for | One-time known expense | Flexible, ongoing needs | Lowest rate on large amounts | Small amounts, no equity |
The application process
| Step | Timeline | What Happens |
|---|---|---|
| 1. Initial inquiry | Day 1 | Contact lender or mortgage broker; discuss needs and eligibility |
| 2. Application | Day 1–3 | Submit application with income documents and property details |
| 3. Credit check | Day 1–3 | Lender pulls credit report (hard inquiry) |
| 4. Property appraisal | Day 3–10 | Appraiser visits property; report sent to lender |
| 5. Underwriting | Day 5–15 | Lender reviews all documents, confirms LTV, approves |
| 6. Commitment letter | Day 10–20 | Written approval with rate, terms, and conditions |
| 7. Legal closing | Day 15–30 | Lawyer registers charge on title; funds released |
| Total timeline | 2–4 weeks | Faster with a broker who pre-qualifies your application |
Tax implications
When interest is tax-deductible
In Canada, interest on a home equity loan is not deductible when used for personal purposes (renovations, debt consolidation, vacations). However, it may be deductible when:
| Use of Funds | Tax-Deductible? | Condition |
|---|---|---|
| Home renovations | No | Personal use |
| Debt consolidation | No | Personal debt |
| Investment in income-producing assets | Yes | Must produce income (rental property, dividend stocks, business) |
| Rental property down payment | Yes | Clear paper trail from HEL to investment |
| Business investment | Yes | Legitimate business purpose |
Important: The CRA requires a clear link between borrowed funds and the income-producing use. Keep meticulous records and consult a tax professional before claiming interest deductions.
Risks to understand
| Risk | Explanation | Mitigation |
|---|---|---|
| Your home is collateral | Default on the HEL and the lender can force a sale | Only borrow what you can comfortably repay |
| Two payments | HEL payment is on top of your mortgage payment | Ensure combined payments fit your budget (TDS < 44%) |
| Interest rate premium | HEL rates are higher than first mortgage rates | Consider refinancing your entire mortgage instead if the amount is large |
| Closing costs | Legal and appraisal fees reduce net proceeds | Factor setup costs into your borrowing decision |
| Over-leveraging | Borrowing against equity reduces your safety buffer | Keep combined LTV under 75% for comfort |
| Home value decline | If home values drop, you could owe more than the home is worth | Conservative LTV (≤75%) provides margin of safety |
When to choose a home equity loan vs alternatives
| Your Situation | Best Option | Why |
|---|---|---|
| Need a specific amount for a renovation | Home equity loan | Fixed rate, fixed payments, one-time disbursement |
| Want ongoing access to funds | HELOC | Revolving credit you can draw and repay repeatedly |
| Need a large amount and have a high mortgage rate | Mortgage refinance | Blend everything into one lower-rate mortgage |
| Need a small amount (<$25,000) | Personal loan or LOC | Avoids legal and appraisal fees |
| Want tax-deductible interest for investing | HELOC or HEL | Either works; Smith Manoeuvre uses HELOC specifically |
| Have equity but poor credit | B-lender HEL | More accessible than unsecured options |