Short answer: A home equity line of credit (HELOC) is a revolving line of credit secured by your home. It can be up to 65% of your home’s value, and your mortgage plus the line can total up to 80%. You only pay interest on what you use, usually at prime plus a small margin. It works like a personal line of credit, with a much better rate.
For general information only. Every lender has its own rules, rates and approval criteria.
How it works
Say your home is worth $600,000 and you owe $350,000.
- 80% of $600,000 is $480,000
- $480,000 minus your $350,000 mortgage leaves up to about $130,000 of available credit
The line sits at zero until you use it. Borrow $20,000 for a kitchen, and you pay interest on $20,000 only. Pay it back, and the room opens up again.
What it costs
- Rate: variable, usually prime plus a small margin. When prime moves, your rate moves.
- Payments: usually interest only on what you’ve borrowed. You can pay more any time with no penalty.
- Setup: often free when it’s set up with a new mortgage or at renewal. Adding one mid term usually means legal and title costs.
HELOC or refinance?
| HELOC | Refinance | |
|---|---|---|
| Rate | Variable, usually a bit higher than a mortgage | Mortgage rate |
| Payments | Interest only on what you use | Principal and interest on the full amount |
| Flexibility | Borrow, repay and borrow again | One lump sum |
| Penalty to set up | None if added at renewal | May have a prepayment penalty mid term |
| Best for | Projects in phases, an emergency fund, short term needs | A large amount you’ll pay back over years |
A HELOC also means your main mortgage keeps its rate. If your mortgage was originally insured, that can matter: refinancing would move the whole balance to uninsured pricing. See insured vs uninsured mortgages.
Good uses, and one warning
Good uses: renovations, bridging a purchase before a sale closes, a safety net for self employed income, or paying off high interest debt.
The warning: a HELOC is easy to draw on and interest only payments never pay it down on their own. If you use it for debt, set a plan to pay it back.
The easiest time to add one
At renewal. If you’re switching lenders anyway, the new lender can register the line at the same time, and it sits at zero until you need it. See our renewal page for the timeline.
Want to know what you could qualify for? Book a call or call or text 403-648-1541.
Frequently asked questions
How much can I borrow with a HELOC in Canada?
The line itself can be up to 65% of your home's value, and your mortgage plus the line together can be up to 80%. You still need to qualify on your income, credit and debts.
What is the interest rate on a HELOC?
HELOCs are variable and usually priced at prime plus a small margin, often around prime plus 0.5%, depending on the lender. You only pay interest on the amount you've used.
What are the payments on a HELOC?
Most HELOCs only require interest on what you've borrowed each month. You can pay down the balance any time with no penalty, and borrow it again.
When is the best time to set up a HELOC?
Renewal is often the easiest time. If you're switching lenders anyway, the new lender can register the line at the same time, often at no cost. Adding one in the middle of a term usually means legal or title costs.
This article is general information, not personal financial advice. Rates, rules and programs change. Talk to a licensed mortgage broker about your situation. Lacroix Mortgage Group is licensed through Mortgage Connection Inc.