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.
Related pages
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 1, 2026. How we check facts.
- 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
- Justice Laws (Canada): Bank Act
- Justice Laws (Canada): Eligible Mortgage Loan Regulations
- 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