Home Equity Lines of Credit in Canada (HELOC)

A HELOC basically is a line of the credit which is secured against your property. The good thing about this option is that you can set it up as a mortgage if you don’t need all of the money at once. What you need to remember is that HELOC usually comes in a second position and you can get a loan up to 65% of your property’s value.

What is a HELOC?

You have access to 65 percent of the value of your home if you opt for a home equity line of credit in Canada. It’s also important to keep in mind that when you add the HELOC to the unpaid balance on your mortgage loan the total cannot equal more than 80 percent of the value of your home.

It’s easy to figure out how much equity you have at your disposal. First, take the current market value of your home and multiply it by 80 percent.

Next, subtract the unpaid balance of your mortgage. The difference is how much you can borrow via an HELOC – as long as the amount is not more than 65 percent of the value of your home. You can just divide the HELOC amount by the market value of your home if you want to be absolutely sure.

Funds that you borrow via HELOC will be available as a revolving line of credit

Your financial institution will not advance the funds you borrow via HELOC upfront. Instead, once the HELOC is approved, you can access the funds whenever you choose, and pay interest only on the amount you withdraw. The bank will calculate interest daily using a variable rate linked to Prime. Unlike a variable mortgage rate,

The bank will calculate interest daily using a variable rate linked to Prime. Unlike a variable mortgage rate, an HELOC’s relationship to Prime does not always remain the same. For instance, a variable mortgage rate is often Prime +/- a number, such as Prime – 0.35%.

HELOC rates are set at Prime + (not minus) a number, and theoretically, your lender can adjust that number at any time. HELOC rates are usually higher than variable mortgage rates.

You make payments on the interest only

You will need to pay monthly installments if you are using any portion of your HELOC. You will only be required to pay the interest on your outstanding balance and the bank takes that amount out of your account on the same day of each month, similar to the procedure used for a regular line of credit.

You will need to practice some self-control and make additional payments at your own discretion if you want to settle the remainder in full. There’s no need to break your current mortgage if you’re thinking about getting an HELOC (unlike a refinance). You, therefore, will not need to pay a mortgage penalty – only the monthly interest-only payment.

You will need to practice some self-control and make additional payments at your own discretion if you want to settle the remainder in full. There’s no need to break your current mortgage if you’re thinking about getting an HELOC (unlike a refinance). You, therefore, will not need to pay a mortgage penalty – only the monthly interest-only payment.

3 Popular Ways to Access the Equity in Your Home

  1. Home Equity Line of Credit
  2. Second Mortgage or Home Equity Loans
  3. Refinancing
Home Equity Line of Credit


Some homeowners combine a HELOC with amortizing mortgage and this allows you to stretch the loan limit for up to 80% of your property value. If you want to get approved for a HELOC, you need to at least have 20% of equity and as you get more equity; you can ask the line of credit to be increased.

*Increasing equity limit requires a new application and approval process.

HELOCs are quite similar to any other line of credit you receive. That’s right. All you have to do is take care of monthly payments and as long as the traditional mortgage is paid on time, the available limit of HELOC increases.

An important thing to remember here is that HELOC is tied to your home and has low-interest rates. However, the interest rate that you are required to pay depends on the prime lending rate and it can increase as variable rate increases. Some lenders also offer you the option of locking in a specific portion of your HELOC interest rate.

You would also come across lenders that allow you to add a HELOC to your existing first mortgage. In this case, lenders would require an appraisal and the amount of loan you get would depend on the value of the property.

Second Mortgage or Home Equity Loans

Most Canadians confuse a home equity loan with a HELOC, but they are two entirely different products. If you apply for home equity loans, you will receive funds in a lump sum amount, unlike HELOC where you will receive funds as you need it. On the other hand, the interest rate and monthly payment associated with home equity loans are fixed so you can budget accordingly.

Second mortgage or home equity loans are mostly marketed to homeowners who can’t qualify for better options. What’s even better is that you can get a lump sum amount of money for a single large expense.

Some homeowners prefer to use a home equity loan as a short-term solution until the first mortgage matures. This loan allows you to borrow up to 80% of the appraised value of your home minus the first balance of the mortgage.

If you have an exceptional credit history, you might be able to secure a second mortgage or home equity loan through a bank. And if you decide to use this option, the combined value of your first and second mortgage should not exceed 80% of your property value.

If the combined value of both your mortgages exceeds 80% of your property value, you might be asked to pay a higher interest rate along with default mortgage insurance. Some homeowners decide to go for a private lender where default mortgage insurance isn’t applicable. This is because, in the long run, you might end up paying less money to the private lender even though they would charge you a higher interest rate.

Financial experts suggest that you should only opt for a home equity loan if you can repay it within a short period of time like two or three years.

If you are looking to organize your finances, I am sure you have heard about home equity loans such as fixed rate mortgage, or home equity line of credit or HELOC. How is this any different from other mortgage or private mortgages that are available?

Home-Equity Line of Credit (HELOC) is more of a variable rate loan where borrowers get a pre-approved amount with a spending limit that they withdraw as per requirement via a credit card or cheques.

Advantages Of HELOC

Some of the key advantages of home equity loans include:

  • This is by far the most cost-effective method to cut down the overall cost of borrowing;
  • The rate of interest on home equity loans and lines of credit are significantly lower;
  • Compared to many other types of loans, this provides relatively easy loans for unexpected expenses;
  • It gives an individual more flexibility to incorporate additional home improvement measures if they so desire;
  • Home equity loans can be applied to fund college tuition and other highly expensive costs apart from steps like home renovation and debt consolidation initiatives.
  • This kind of loan option allows an individual to get a relatively higher amount of loan for the same security as compared to other forms of loan options available


Individuals can apply as much as 80% of the total value of the home in some cases across Canada. This is as per the rates fixed by the Royal Bank of Canada. For many, this would be a preferred way to consolidate their finances.

Another important aspect is given the current property rates and the valuation upsurge seen across Canada. This puts an individual in a good situation to ensure future expenses and cut down the relative uncertainty about how to fund for their future needs.

Making use of the equity or assets you have built is indeed one of the smartest ways if you need a loan. Check out the best mortgage rates for a HELOC now and start saving.


Refinancing is an option that allows you to take out the equity in your home and add it to your current loan balance. Perhaps the best thing about refinancing is that if the interest rates are lower than that you were paying when you got your mortgage, you can make the most of this advantage as well.

If you decide to go for refinancing, you must have at least 20% equity in your life. This option is particularly popular with homeowners who are suffering from high-interest debt. Refinancing allows you to take up to 80% of the appraised value of your home minus the amount you are left to pay.

Here’s a tricky part. If your mortgage is up for renewal or there is minimum/no fee associated with breaking your mortgage contract, refinancing is a good option to consider. However, if you will be hit with big penalties by breaking your contract, refinancing is certainly not the best deal.

Another risk of refinancing is that you are reducing the equity in your home. Similarly, the strategy is less likely to work if your first mortgage has a typically low-interest rate in comparison to the current rate. Some lenders might offer you to blend the two interest rates when refinancing, but things can get complicated. You can ask your lender to know more about the blended strategy and how it works.

Overall, refinancing has its own set of advantages but like any other financial decision, there are certain risks involved as well. Remember that your mortgage broker will be able to guide you through any questions you might have about home equity strategies.


How to Easily Qualify for a HELOC in Canada

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