What Is a HELOC (Home Equity Line of Credit)?

Once you've built up equity in your home, you can put it to work. A HELOC — home equity line of credit — is a flexible, revolving loan secured against your property. It can be a smart tool for renovations or debt consolidation, but it carries real risks. This guide explains how a HELOC works in Canada, what it costs, and how to decide if it's right for you.

Key takeaways

• A HELOC is a revolving line of credit secured by your home — borrow, repay, and borrow again up to your limit.
• In Canada you can typically access up to 65% of your home's value through a standalone HELOC.
• HELOC rates are usually variable, tied to your lender's prime rate, so payments move when rates move.
• Because your home is the collateral, missing payments can put your property at risk.
• HOMEH gives eligible buyers the industry's highest Cashback Rebate — equity you keep instead of borrowing back. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting.

What is a HELOC?

A home equity line of credit (HELOC) is a loan secured against the equity in your home — the difference between what your property is worth and what you still owe on your mortgage. Unlike a regular loan, a HELOC works more like a credit card: you're approved for a set limit, you draw only what you need, and you pay interest only on the amount you've actually borrowed.

Because it's revolving, you can repay what you've borrowed and draw it again later without reapplying. That flexibility is the main appeal. To understand how a HELOC fits alongside your main loan, it helps to first review how mortgages work in Canada.

How much can you borrow?

In Canada, lenders limit how much equity you can tap. A standalone HELOC can typically reach 65% of your home's appraised value. When a HELOC is combined with a mortgage, the two together generally can't exceed 80% of the home's value — which means your available HELOC room shrinks as your mortgage balance grows.

Here's a simple example for a home worth $800,000 with a $400,000 mortgage still owing.

How much does a HELOC cost?

Most HELOCs carry a variable interest rate set at your lender's prime rate plus a margin. When the Bank of Canada moves its policy rate, prime usually follows — and so does your HELOC payment. That makes a HELOC behave a lot like a variable-rate loan, so it's worth understanding how mortgage rates are determined before you borrow.

HELOCs are typically interest-only by default: your minimum payment covers just the interest, not the principal. That keeps payments low, but it also means the balance never shrinks unless you pay extra — a common trap for borrowers who treat a HELOC like free money.

Variable means your payment can rise

Because HELOC rates float with prime, a rate increase raises your interest cost immediately. Budget for the possibility of higher payments, not just today's rate.

HELOC vs. refinancing vs. a second mortgage

A HELOC isn't the only way to access home equity. Refinancing replaces your existing mortgage with a larger one and gives you the difference in cash, while a HELOC sits alongside your mortgage and stays revolving. The right choice depends on whether you want a lump sum or flexible access.

If you're weighing a refinance instead, our guide on whether you should refinance walks through the trade-offs — and watch for mortgage penalties if you break your current term early.

When a HELOC makes sense (and when it doesn't)

Used well, a HELOC can be a low-cost, flexible source of funds. Used poorly, it can turn into long-term debt secured against your home.

• Good fit: a home renovation that adds value, consolidating higher-interest debt, or a financial buffer you may not fully use.
• Be cautious: funding lifestyle spending, investments you can't afford to lose, or anything you can't repay if rates climb.
• Remember the collateral: your home secures the loan, so default can ultimately put your property at risk.

Keep more equity in the first place

Before borrowing equity back, it's worth keeping more of it on the way in. HOMEH gives eligible buyers the industry's highest Cashback Rebate — money that stays in your pocket. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting. See what you could get with the HOMEH cashback calculator.