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%.
Quick answer: HELOC = revolving credit secured by your home, variable rate at prime + 0.5-1%. Minimum payment is interest-only. Cap is 65% combined LTV (mortgage + HELOC) under OSFI rules. Stress-tested at HELOC rate + 2%.
What this means: A HELOC is the cheapest unsecured-style credit a homeowner can access, but interest-only payments mean balances can sit for years without principal reduction. Treat it like a credit card with a low rate, not a forced savings tool.
What to do next: Calculate interest-only and principal-plus-interest HELOC payments for your specific balance and rate. Calculate HELOC payment →
How a HELOC works
- Your lender appraises your home’s current market value.
- The lender determines your maximum credit limit: up to 65% of the home value, less any existing mortgage balance.
- You access funds by transfer, cheque, debit card, or online banking as needed — not all at once.
- Interest accrues monthly on the outstanding balance.
- Minimum monthly payment is usually interest-only on the outstanding balance.
- 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
| Payment style | Monthly on $50,000 at 6.75% | Years to clear | Total interest |
|---|---|---|---|
| Interest-only minimum | $281 | Forever (no principal reduction) | Indefinite |
| $500 / month (interest + principal) | $500 | ~13 years | ~$28,000 |
| $750 / month | $750 | ~7.5 years | ~$13,000 |
| $1,000 / month | $1,000 | ~5 years | ~$8,500 |
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%.
| Step | Amount |
|---|---|
| Home value | $850,000 |
| Maximum combined LTV (65%) | $552,500 |
| Less existing mortgage | −$310,000 |
| Available HELOC limit | $242,500 |
| Borrowed (reno + debt consolidation) | $85,000 |
| HELOC rate | ~6.75% (prime + 0.80%) |
| Interest-only payment | $478/month |
| Janet’s self-imposed payment ($1,200/mo) | $1,200/month |
| Months to clear $85K at $1,200/mo | ~80 months (6.7 years) |
| Total interest paid at $1,200/mo | ~$11,500 |
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.
Frequently asked questions
- What is a HELOC?
- A Home Equity Line of Credit — a revolving line of credit secured by your home with a variable interest rate, usually prime plus 0.5-1%. You borrow as needed and repay flexibly.
- What is the maximum HELOC in Canada?
- OSFI caps standalone HELOCs at 65% of the home’s appraised value. Combined with a first mortgage, total LTV cannot exceed 80% at federally regulated lenders.
- Are HELOC payments interest-only?
- The minimum required payment is typically interest-only. You can pay principal at any time, and most borrowers should pay at least some principal to avoid carrying the balance indefinitely.
- What is the HELOC rate in 2026?
- Approximately 6.5-7% based on prime + 0.5-1%. Variable, so it moves with Bank of Canada rate changes. Confirm the current rate with your lender.
- Is HELOC interest tax-deductible?
- Only if the borrowed funds are used to earn income (investment property, dividend stocks, business). Personal-use HELOC interest is not deductible. Keep separate HELOCs for investment use to make the deduction clean.
- Does the stress test apply to HELOCs?
- Yes. You must qualify at the greater of the HELOC contract rate + 2%, or 5.25%. With current rates around 6.75%, the qualifying rate is approximately 8.75%.
- Can I lose my home if I default on a HELOC?
- Yes. A HELOC is secured by your home. Persistent missed payments can lead to enforcement, including foreclosure or forced sale, after defaults and statutory notice periods.