HELOC Payments in Canada Explained

A Canadian Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home, with a variable interest rate typically set at prime + 0.5% to 1% (roughly 6.5-7% in 2026, given prime around 5.95%). Minimum monthly payments are usually interest-only, which makes monthly cash flow easy but means the principal balance does not decline unless you pay extra. The combined loan-to-value (mortgage + HELOC) is capped at 65% of your home’s appraised value under OSFI rules, and the federal mortgage stress test applies at the HELOC qualifying rate plus 2%.

How a HELOC works

1. Your lender appraises your home’s current market value.
2. The lender determines your maximum credit limit: up to 65% of the home value, less any existing mortgage balance.
3. You access funds by transfer, cheque, debit card, or online banking as needed — not all at once.
4. Interest accrues monthly on the outstanding balance.
5. Minimum monthly payment is usually interest-only on the outstanding balance.
6. You can repay principal at any time, then re-borrow up to the credit limit.

The 65% LTV cap (OSFI rule)

OSFI’s Guideline B-20 caps stand-alone HELOCs at 65% of the home’s appraised value. Combined with a first mortgage, the total cannot exceed 80% LTV (for federally regulated lenders). Example: $800,000 home, $300,000 mortgage. Maximum HELOC = ($800,000 × 65%) − $300,000 = $220,000.

Some HELOCs are structured as “readvanceable” mortgages where the available HELOC limit increases automatically as you pay down the mortgage principal — effectively keeping you at the 65-80% LTV ceiling.

The HELOC stress test

The federal mortgage stress test (OSFI Guideline B-20) applies when you apply for or increase a HELOC. You must qualify at the greater of your HELOC contract rate + 2%, or 5.25% — whichever is higher. In 2026, with HELOC rates around 6.75%, the qualifying rate is 8.75%. Lender computes your GDS (39%) and TDS (44%) ratios using that higher rate.

This is why HELOC approval gets tighter when interest rates rise: same income, same home, but the qualifying rate climbs higher. The same stress test applies when applying for a regular mortgage — see The mortgage stress test in 2026.

Interest-only vs principal-plus-interest payments

The interest-only minimum is the trap. Even modest extra payments cut interest cost by tens of thousands over the loan life.

Readvanceable mortgages

A readvanceable mortgage combines a regular mortgage with a HELOC under one umbrella product. As you pay down the mortgage principal, the HELOC limit increases automatically. Common products:

• Scotia STEP
• TD Home Equity FlexLine
• BMO Homeowner ReadiLine
• RBC Homeline Plan
• National Bank All-in-One
• Manulife One

These are particularly popular for the “Smith Manoeuvre” strategy — using HELOC funds to invest in income-producing assets, making the HELOC interest tax-deductible. Be cautious: the strategy increases investment leverage and requires disciplined recordkeeping for the interest deduction.

When HELOC interest is tax-deductible

HELOC interest is tax-deductible in Canada only if the borrowed funds are used to earn income — e.g., buying dividend stocks, a rental property, or business assets. Personal-use HELOC interest (renovation, car, vacation, debt consolidation of personal debt) is not deductible.

If you commingle personal and investment uses of the same HELOC, the deduction becomes administratively painful — CRA expects clear records of which dollars went where. Best practice: open a separate HELOC for investment use, never mix personal spending into it.

When a HELOC makes sense

• Renovation projects. Easier than a personal loan, lower rate. Pay off promptly to avoid years of interest-only drift.
• Bridge financing. Buying a new home before selling the old one.
• Investment in income-producing assets. Tax-deductible interest can make leverage viable, but only with discipline.
• Emergency reserve (without using it). Having an open HELOC for emergencies is fine; carrying a balance treated as long-term debt is the problem.
• Consolidating high-rate debt. 21% credit card debt converted to 6.75% HELOC saves substantial interest — if you don’t re-accumulate the cards. Debt consolidation options in Canada compares HELOC against personal loan, balance transfer, and consumer proposal.

When a HELOC is the wrong tool

• Funding ongoing lifestyle expenses you can’t cover from income
• You’re close to retirement and the HELOC balance is large relative to remaining working years
• You have not changed the spending pattern that created the original debt
• You don’t have a clear principal-repayment plan beyond the interest-only minimum
• You expect to move within 1-2 years (closing-day discharge fees and stress-test re-qualifying on the next home)

Worked example

Janet has a $850,000 home, $310,000 mortgage. She wants to renovate her kitchen for $60,000 and refinance $25,000 in credit card debt at 21%.

Compared to leaving $25K of credit card debt at 21% APR, Janet saves about $4,500/year in interest by consolidating into the HELOC. The reno portion costs about $7,000 in HELOC interest over 6.7 years — the trade-off she chose for the new kitchen.