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Home Renovation Loans in Canada: HELOC, Refinance and Other Options

Updated

A renovation can be paid for from savings, by borrowing against the home, by adding the cost to a mortgage, or with an unsecured loan. Each option differs in what secures it, how you draw and repay the money, and how its rate is set. This page compares them, with the limits that apply and the government credits that can offset some costs. For planning how much the project will cost, see the home renovation budget guide. More guides are in the refinancing and home equity hub.

The options at a glance

OptionSecured by your home?How you get and repay the moneyWhere the limit comes from
Home equity line of credit (HELOC)YesDraw as needed, repay and draw again; you pay interest only on what you borrowThe HELOC and loan-to-value limits below, and your income
RefinanceYesYour mortgage is replaced by a larger one; the difference is paid outThe loan-to-value limit below; breaking a closed mortgage early normally costs a penalty
Second mortgage or home equity loanYesA separate loan registered behind your first mortgageThe loan-to-value limit below (together with the first mortgage, at a bank), and the lender’s terms
CMHC Improvement (when buying)YesThe renovation is financed in an insured purchase mortgageA share of the as-improved value
Insured refinance to add a secondary suiteYesThe suite’s cost is added in an insured refinanceA share of the as-improved value
Personal loan or line of creditNoA loan or a revolving line; no collateralThe lender’s terms and your credit

Secured borrowing means the lender can take the home if you don’t repay. With an unsecured personal loan there’s no collateral, but if you don’t make your payments the lender may sue you or take money from your account.

Home equity line of credit (HELOC)

The Financial Consumer Agency of Canada (FCAC) lists renovating your home among the uses of a HELOC. How it works, from the FCAC:

  • You borrow as you go. You only pay interest on the amount you borrow, and you can repay the balance at any time. Your lender may require regular payments of only the interest, or of principal and interest.
  • The rate usually varies. Most HELOCs have a variable interest rate, typically based on your lender’s prime rate, so payments rise if prime rises. The chartered-bank prime rate reported by the Bank of Canada was 4.45% as of 2026-09-30.
  • Two kinds. A HELOC combined with a mortgage (also called a readvanceable mortgage) comes from your mortgage lender, and its available credit rises as you pay the mortgage down; a standalone HELOC is separate from the mortgage.

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. To qualify at a bank you also have to pass the stress test: 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.

Example: a home valued at $800,000 with $400,000 left on the mortgage. Mortgage and HELOC together can reach 80% of the value, $640,000, which leaves $240,000 of HELOC room. The revolving HELOC itself is capped at 65% of the value, $520,000, so the room available is the lesser of the two, $240,000, subject to the lender’s income check.

If you drew $50,000 at prime plus 1% (the margin in the FCAC’s own example; your lender sets yours), interest-only payments at the prime rate above would be about $227 a month: $50,000 × the annual rate ÷ 12. Those payments would never reduce the $50,000.

The risks the FCAC lists: if interest rates increase, a HELOC can be hard to repay, especially after large withdrawals; if you don’t pay it back, you could lose your home; it reduces your home equity, which can limit your options if you want to sell; easy access to funds can tempt you into more debt than you can repay; and if you only pay the interest, you won’t pay off the loan. The FCAC suggests having a repayment plan before you borrow. For how HELOC rates are priced, see HELOC rates in Canada.

Refinancing

A refinance replaces your mortgage with a larger one and pays out the difference, so the renovation is repaid with the mortgage. The same loan-to-value limit applies: 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.

Example: a home valued at $600,000 with $300,000 left on the mortgage could be refinanced to $480,000, freeing up to $180,000 before any penalty and fees.

The costs: if you break a closed mortgage before the end of its term, you normally pay a prepayment penalty, and the FCAC lists administration, appraisal, reinvestment and discharge fees that may also apply. Refinancing at renewal avoids the penalty. For the trade-offs, see HELOC vs refinance, cash-out refinancing and how mortgage penalties are calculated.

Second mortgage or home equity loan

A second mortgage or home equity loan is a separate loan secured by your home, so the first mortgage and its rate stay in place and no penalty is triggered on it. The loan-to-value limit above still applies to the two loans together at a bank. See the home equity loan guide and the second mortgage calculator.

Adding the renovation to an insured mortgage

When buying a home that needs work: CMHC Improvement. CMHC’s product for buyers of an existing home that needs work offers insured financing up to 95% of the “as-improved” value for one- or two-unit owner-occupied homes, and up to 90% for three- or four-unit owner-occupied homes. Improvement costs of 10% or less of the as-improved value are advanced in one payment; larger ones are advanced in stages as the work progresses. For how these mortgages work, see purchase plus improvements mortgages.

When adding a secondary suite: insured refinance. Since January 15, 2025, an insured refinance can fund a secondary suite: up to 90% of the as-improved value, for homes of up to 4 units with an as-improved value below $2 million, and an amortization of up to 30 years. The proposed federal Canada Secondary Suite Loan program won’t go ahead: the federal budget said it “will not be implemented” (see the Canada Secondary Suite Loan Program).

Unsecured loans and lines of credit

A personal loan or unsecured line of credit doesn’t need collateral, so your home isn’t at risk, and a loan is repaid in regular payments over a set term. The FCAC notes that HELOCs often have interest rates lower than unsecured loans and credit cards. For the comparison, see HELOC vs personal line of credit.

Government programs and tax credits

  • Canada Greener Homes Grant and Loan: closed. December 31, 2025 was the last day to submit grant documents, and for the loan, “No further applications can be approved. Applications that have already been approved are not affected.” See the Greener Homes Grant page for current programs.
  • Multigenerational Home Renovation Tax Credit: for 2025, a refundable credit of 14.5% of up to $50,000 of qualifying costs per qualifying renovation, a maximum of $7,250, for creating a self-contained secondary unit so a senior or an adult eligible for the disability tax credit can live with a qualifying relative.
  • Home Accessibility Tax Credit: see the Home Accessibility Tax Credit for who qualifies and which renovations count.
  • Provincial and utility programs: each province and many utilities run their own rebate programs, so check your province’s and utility’s sites.

Tax treatment of renovations

On the home you live in, interest on money borrowed for a renovation isn’t deductible: The borrowed money has to be used to earn income from a business or property, such as rent, interest or dividends; interest on money used for personal purposes isn't deductible. On a rental property, the cost is either deducted or depreciated: A rental expense that only restores the property to its original condition is usually a current expense, deducted in the year you pay it; one that improves the property beyond its original condition, extends its life, gives a lasting benefit or replaces a separate asset is usually a capital expense, added to a CCA class instead. Interest on money borrowed to renovate a rental can be deductible; see mortgage interest on a rental property.

Sources

The figures and rules on this page come from these sources, last checked against them between September 24, 2026 and October 2, 2026. How we check facts.