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 2026-09-30.
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 29, 2026 and October 2, 2026. How we check facts.
- 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: Interest rates posted for selected products by the major chartered banks
- Bank of Canada: Data table
- 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
- Financial Consumer Agency of Canada: Home equity lines of credit
- Financial Consumer Agency of Canada: Borrowing against home equity
- Financial Consumer Agency of Canada: How much you need for a down payment
- Financial Consumer Agency of Canada: Breaking your mortgage contract
- Financial Consumer Agency of Canada: Mortgage fees: Prepayment penalties
- 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