What a HELOC is
A home equity line of credit is revolving credit secured against your home. Like a credit card with a much lower rate, you can draw what you need, pay it back, and draw again up to your approved limit.
Most HELOCs require interest-only minimum payments, which keeps monthly costs low but means the balance does not shrink unless you pay extra. The rate is variable, quoted as prime plus a margin.
How much you can borrow
Canadian rules cap a standalone HELOC at 65% of your home's appraised value. You can combine a HELOC with a mortgage up to a total of 80% of value, often through a 'readvanceable' mortgage that grows your available credit as you pay down the loan.
Example: on an $800,000 home, 80% is $640,000. If your mortgage balance is $400,000, you could access up to about $240,000 in combined credit, with the pure HELOC portion capped at 65% of value.
HELOC vs refinance vs second mortgage
Each route to your equity suits a different need, so match the tool to the job.
- HELOC: best for ongoing or uncertain needs (renovations in stages, a financial cushion). Flexible, but variable-rate and higher than a mortgage.
- Refinance: best for a large lump sum at the lowest rate (debt consolidation, a major project). You break or replace your mortgage, so watch for penalties.
- Second mortgage: a separate loan behind your first; useful when you do not want to disturb a great existing rate, but rates are higher.
The risks to weigh
Because a HELOC is secured by your home, missed payments put the property at risk. The interest-only minimum makes it easy to carry a balance indefinitely and pay far more interest than you planned.
A variable rate also means your cost rises when prime rises. Borrow with a repayment plan, not just a limit, and stress-test the payment against a higher rate before you draw.