Home equity line of credit (HELOC)
A revolving line secured on your home. Draw what you need, repay it and draw again, paying interest only on what you use.
Start your HELOC application →What is a HELOC and how does it work?
A home equity line of credit is a revolving credit limit secured against your home. You draw funds when you need them, pay interest only on the balance, and the room comes back as you repay. Minimum payments are often interest-only.
It is the most flexible way to borrow against your home, and that flexibility is also its main risk: without a plan, the balance can sit there for years.
- The revolving portion can be up to 65% of your home's value.
- Combined with a mortgage, total borrowing can reach 80% of value.
- Rates are usually variable and tied to the lender's prime rate.
How a HELOC works
Think of it as a credit card secured on your house, with a much lower rate and a much higher limit. The lender approves a limit. You move money out by transfer, cheque or card. Each month you owe at least the interest on what is outstanding. Pay down the balance and that room is available again.
The rate is almost always variable: the lender's prime rate plus or minus a spread. When prime moves, your interest moves the same day. There is no fixed term to break, so there is generally no prepayment penalty for paying it off.
The 65% and 80% limits
Federal rules set two caps. The revolving HELOC portion can't exceed 65% of your home's value. Your HELOC plus any mortgage can't exceed 80%. Whichever cap bites first sets your limit.
Examples (illustrative)
With a mortgage: home $800,000, mortgage $400,000. 80% cap = $640,000. HELOC limit up to $640,000 − $400,000 = $240,000.
Mortgage-free: home $800,000, nothing owing. The 65% cap applies: HELOC limit up to $520,000. Reaching the full 80% ($640,000) would need the extra $120,000 set up as an amortizing mortgage portion.
Readvanceable mortgages
A readvanceable mortgage puts a regular amortizing mortgage and a HELOC under one registered limit. Every dollar of principal you pay on the mortgage becomes a dollar of available HELOC room. If your payments knock $1,500 a month off the principal, your line grows by $1,500 a month, up to the overall cap. You can often split the mortgage side into fixed and variable segments too.
It is efficient if you want ongoing access to equity. The trade-off: these are usually registered as collateral charges, so moving to another lender at renewal typically means new legal work rather than a simple switch. Factor that in when you look at switching lenders at renewal.
Interest-only minimums and the discipline trap
Here is where HELOCs go wrong. Say you draw $50,000 at an example 7%. The minimum payment is interest only: about $292 a month. Pay that for five years and you have spent about $17,500 on interest and still owe $50,000.
Pay it off over five years instead, about $990 a month at the same rate, and total interest drops to about $9,400. Same line, same rate, very different result. If you open a HELOC, set up an automatic payment that clears the balance on a schedule you choose.
Costs and qualifying
Expect an appraisal and legal fees to register the charge on title; some lenders cover part of these, and some charge an annual fee. To qualify, most lenders assume the full limit is drawn and being repaid at the stress-test rate, so a large limit can reduce what you qualify for elsewhere. Run the numbers in the mortgage payment calculator to see how a draw would look if repaid on a schedule.
How to set one up
- Check your room. Work out 80% of your home's value minus what you owe, and keep the revolving portion under 65% of value.
- Decide on the structure. Choose a standalone HELOC, a HELOC added beside your mortgage, or a readvanceable mortgage at refinance or renewal.
- Apply and qualify. Lenders usually qualify you as if the full limit were drawn and being repaid, using the stress-test rate.
- Appraisal and legal. The lender confirms value and a lawyer registers the charge on title.
- Draw and repay. Use cheques, transfers or a card to draw funds, and repay on your own schedule above the interest minimum.
HELOC vs. refinance vs. equity takeout
| Feature | HELOC | Refinance / equity takeout |
|---|---|---|
| Access to funds | Revolving, draw as needed | Lump sum at closing |
| Maximum | 65% of value (80% with a mortgage) | 80% of value |
| Interest | Only on the amount drawn | On the full amount from day one |
| Rate type | Variable, prime-based | Fixed or variable |
| Payments | Often interest-only minimum | Principal and interest on a schedule |
| Penalty to set up | Usually none if added beside your mortgage | Possible if you break mid-term |
| Best for | Staged or uncertain needs | A known, one-time amount |
A refinance and an equity takeout are really the same mechanism: a new, larger mortgage with cash to you. Our guide to breaking your mortgage to refinance covers the penalty math, and home equity takeout walks through how much you can access.
Using a HELOC for a renovation
Renovations rarely cost what the first quote says, and contractors want paying in stages. A HELOC fits that pattern. Example: a $75,000 basement suite paid in three draws of $25,000 over four months. You pay interest on $25,000 in month one, not $75,000. Once the suite is rented, put the rent toward the balance.
The risk is that the line becomes permanent. Agree a payoff plan before the first draw. Our page on paying for a renovation with home equity compares a HELOC with refinancing and purchase-plus-improvement.
Other good uses, and one to be careful with
A HELOC works well as an emergency backstop that sits unused, for smoothing irregular self-employed income, or for paying off a high-rate card balance with a firm plan to clear it. Be careful using it to consolidate debt without that plan. Paying cards off with a HELOC and then running them back up leaves you with both balances. If you want a fixed end date, look at debt consolidation mortgages instead.
Frequently asked questions
Short answers to the questions homeowners ask before opening a HELOC.
How does a home equity line of credit work?
A HELOC is a revolving credit line secured on your home. You get a limit, draw what you need, repay it and draw again. Interest is charged only on the balance you use, usually at a variable rate tied to the lender's prime rate.
How much can I borrow with a HELOC in Canada?
The revolving HELOC portion can be up to 65% of your home's value. Combined with a regular mortgage, total borrowing can reach 80%. On an $800,000 home with $400,000 owing, the 80% cap of $640,000 leaves room for a HELOC limit of up to $240,000.
Do I have to pay principal on a HELOC?
Usually not. Most HELOCs only require monthly interest, so the balance never shrinks unless you choose to pay it down. That flexibility is useful, but it is also why balances linger for years. Set your own repayment schedule from the first draw.
What is a readvanceable mortgage?
A readvanceable mortgage combines an amortizing mortgage and a HELOC under one registration. As you pay down mortgage principal, your available HELOC limit rises by the same amount, up to the overall limit. It lets you reuse equity without reapplying.
Is a HELOC better than refinancing?
A HELOC is better for staged or uncertain needs and usually avoids breaking your mortgage. A refinance is better for a known lump sum you want to repay on a fixed schedule, and it can reach 80% of value rather than 65% for a standalone line.
Does a HELOC cost anything if I don't use it?
There is no interest on an unused HELOC, but setting one up usually involves an appraisal and legal fees, and some lenders charge an annual or admin fee. Ask for all of these in writing before you sign.
Set up a line you'll use wisely
Flexible cash when you need it, at the best rates. Free to apply and no obligation. An agent will show you your limit, the set-up costs and a repayment plan that works.
Start your HELOC applicationBest available rate from 8Twelve's lender panel, subject to qualification and lender approval. OAC. Your rate depends on your individual financial situation.
Related services and tools
Related services
- Home equity takeout: Borrow a lump sum against your home's value for a purchase, an investment or a family need.
- Our mortgage refinance guide: Replace your mortgage mid-term to change the rate, the amortization or the amount you owe.
- Renovation financing options: Fund a kitchen, basement suite or addition with equity rather than a high-rate loan.
- Debt consolidation mortgages: Pay out credit cards and loans with home equity so one payment replaces several.
- Our renewal guide: Compare your lender's renewal offer against the market before you sign it.