How a Home Equity Line of Credit (HELOC) Works in Canada

A home equity line of credit, or HELOC, lets you borrow against the equity you’ve built in your home the way you’d use a credit card: draw what you need, pay it back, and draw again, without reapplying each time. It’s secured by your home, so the rate runs lower than an unsecured line of credit, but the lender can register a charge against your property, and the debt follows the house until it’s cleared. How much you can borrow isn’t a matter of negotiation with your bank. A federal banking guideline sets the ceiling, both on the revolving HELOC itself and on what it can add up to alongside any mortgage you’re still carrying. For everything else a Toronto purchase or sale involves, see our complete Toronto real estate guide.

If you’re comparing this against the other pieces of a Toronto mortgage, our guides to mortgage renewal and what CMHC insurance costs cover two adjacent questions this one doesn’t. If a secondary suite or a new structure on your property is what’s driving the equity question, our guides to paying for a secondary suite and how a construction mortgage works cover the two routes built specifically for that. This guide sticks to the HELOC itself: what it is, how it differs from the products it gets confused with, and the loan-to-value and stress-test rules that govern it today.

What a home equity line of credit is, and how it differs from a second mortgage, a home equity loan and a refinance

Four products get used almost interchangeably in conversation, and they aren’t the same thing. A HELOC is revolving: you’re approved for a limit, you draw against it as needed, you pay down what you’ve drawn, and the room you’ve repaid becomes available again, the same shape as a credit card rather than a loan. A home equity loan is the lump-sum version of the same idea. You receive the full amount once, on a fixed repayment schedule, and there’s no redrawing it once you’ve paid it down. If you know exactly how much you need and want a fixed payment you can plan around, that’s the home equity loan’s advantage over a HELOC. If you don’t know the full amount yet, or you’re spending it in stages, the HELOC’s revolving structure fits better and you pay interest only on what’s outstanding.

A second mortgage is a separate loan registered behind your existing first mortgage, and because it sits in a subordinate position, it typically carries a higher rate than either a first mortgage or a HELOC tied to one. A HELOC can be set up as its own stand-alone second charge with a different lender, or combined with your first mortgage under one structure, sometimes called a readvanceable mortgage, where the revolving limit grows automatically as you pay down the amortizing portion. Either structure leaves the HELOC’s own revolving mechanics unchanged.

A refinance is the biggest of the four moves: it replaces your existing mortgage outright with one new, larger mortgage, and you’re charged interest on the full new balance from the day it closes, whether or not you’ve spent all of it. A HELOC changes nothing about your existing mortgage. It sits alongside it, and you only pay interest on the portion you’ve drawn. Choosing between the two usually comes down to wanting one larger fixed obligation with a locked-in rate, or ongoing flexible access with a variable one.

The loan-to-value ceiling that applies today

This isn’t set by negotiation, and it isn’t set by statute either. It comes from a supervisory guideline, OSFI’s Guideline B-20, which applies directly to federally regulated financial institutions: the big banks and any other federally chartered lender. Nothing in the Bank Act or any provincial law writes this number into legislation; it’s a standard the regulator expects a federally regulated lender to follow as a condition of sound underwriting. A credit union or other provincially regulated lender isn’t bound by OSFI’s rule the same way, though many hold to a similar limit regardless.

The figure itself has two parts. The revolving HELOC portion on its own is capped at 65% of your home’s value, assessed at the time the line is set up. Combined with whatever you still owe on an amortizing mortgage, the total can’t exceed 80% of value. Ratehub’s own published example shows how the two interact: on a $600,000 home carrying a $300,000 mortgage, 80% of the home’s value is $480,000, and subtracting the $300,000 still owed leaves $180,000 of room under the combined rule. Checking that figure against the 65% revolving-only ceiling, $390,000 on a $600,000 home, confirms $180,000 clears it easily, so the combined 80% rule is what limits the HELOC in that example, not the revolving-only figure. On a home with little or no mortgage left, the 65% ceiling becomes the one doing the limiting instead.

A HELOC itself can’t carry mortgage default insurance the way an amortizing high-ratio mortgage can; see our guide to what CMHC insurance costs for how that works on the mortgage side. Because the revolving portion is always uninsured, the combined ceiling stops at 80% rather than going higher the way an insured first mortgage alone sometimes can.

The “new rules” people search for most likely trace back to 2023, when OSFI’s own clarification on Guideline B-20 tightened how this applies specifically to combined, readvanceable structures. Before that change, a readvanceable mortgage’s revolving limit could effectively track the full 80% combined ceiling as the amortizing balance fell, letting the HELOC portion creep toward the top of the combined room over time. Under the current guideline, anything between 65% and 80% of value has to be structured as its own amortizing, non-revolving loan sitting behind the HELOC, not folded back into the open revolving line. The underlying 65% and 80% figures aren’t new; what changed is how the space between them has to be structured inside a combined plan.

Whether the stress test applies to a HELOC the way it applies to a mortgage

Yes, with the same underlying purpose as a mortgage stress test, applied to a different product. The Financial Consumer Agency of Canada’s own guidance on borrowing against home equity confirms a federally regulated lender has to check that someone applying for a new HELOC could keep up with payments if the rate on the amount they’ve drawn moved higher, not just qualify them against today’s rate. That’s the same principle behind the stress test on a new mortgage: test against a harder scenario than the one sitting in front of the applicant right now, so a rate increase down the road doesn’t immediately put the borrower underwater on payments they could only ever afford at the starting rate.

What isn’t settled, at least not from sources that agree with each other, is the exact qualifying rate a lender uses for a HELOC specifically. The figures that show up in broker explainers for the standard mortgage stress test don’t automatically carry over to a HELOC application, and the handful of sources that do name a specific HELOC qualifying rate conflict with the loan-to-value figures everything else agrees on, and this guide doesn’t repeat an unconfirmed number. What holds across every reliable source is the shape of it: a HELOC application at a federally regulated lender gets tested against a rate higher than the one it would carry, for the same reason a new mortgage does. If you’re weighing this at the same time as a mortgage coming up for renewal, our guide to what actually happens at renewal covers how that side of requalifying works.

What a HELOC is good for, and the risk it carries

Three situations come up most often. A renovation is the clearest fit: draw only what each stage of the work costs, and pay interest only on the outstanding balance rather than a lump sum sitting unused. Consolidating higher-rate debt, a credit card balance or an unsecured line, into a HELOC’s lower secured rate is the second, though it only helps if the lower payment doesn’t just free up room for the old debt to build back up behind it. The third is bridging the gap between selling one home and buying the next, drawing against the equity in the home you’re selling to cover a deposit or closing costs on the one you’re moving into before the sale closes. If that’s the situation you’re weighing, browse current Toronto listings while you work out the HELOC side of the math.

The risk sits in two features working together: a variable rate, so the payment moves when the Bank of Canada’s rate does, and revolving debt, so there’s no fixed date it has to be gone by, the way there is with a car loan or a fixed-term home equity loan. The Financial Consumer Agency of Canada’s own 2017 research into HELOC borrowing found that a meaningful share of borrowers were paying only the interest charge each month, which keeps the balance exactly where it started. That isn’t a flaw in the product. It’s what a HELOC is built to let you do, and the discipline to reduce what’s owed has to come from the borrower, because nothing in the structure forces it.

How a HELOC relates to financing a secondary suite or a new build

A HELOC is one of several ways to pay for a secondary suite or a new structure, and it fits alongside the two routes this site already covers. The CMHC-insured refinance explained in our guide to paying for a secondary suite is built specifically around a legal secondary suite: it lets you refinance up to 90% of your home’s value after the renovation, disbursed as one lump sum and insured by CMHC, above the uninsured 80% combined ceiling a HELOC tops out at. A construction mortgage, covered in our guide to how it works, starts from the opposite position: no existing equity to borrow against at all, because it’s financing a ground-up build rather than tapping value that already exists.

It sits between those two products. Like the secondary-suite refinance, it assumes you already have equity, but it stays revolving and capped at the lower uninsured ceiling instead of being refinanced into one new insured mortgage. Which one fits a given project depends on how much equity exists, whether the suite is likely to qualify for mortgage insurance, and whether a revolving line or a one-time lump sum matches how the money’s going to be spent. That’s a math-and-eligibility question for a mortgage broker to run against your own numbers, not one this guide can settle in general terms.

Frequently asked questions

What’s the difference between a HELOC and a home equity loan?

A HELOC is revolving credit: you’re approved for a limit, draw against it as needed, pay down what you’ve drawn, and that room becomes available again, much like a credit card. A home equity loan pays out once, as a lump sum, on a fixed repayment schedule with no redrawing once it’s paid down. If you need a known amount and want a predictable fixed payment, a home equity loan usually fits better. If you’re spending the money in stages or don’t know the exact total yet, a HELOC means you only pay interest on what’s outstanding, rather than on an amount sitting unused.

Is a HELOC the same thing as a second mortgage?

Not necessarily, though the two overlap. A second mortgage is any separate loan registered behind an existing first mortgage, usually at a higher rate because it sits in a subordinate position. A HELOC can be set up that way, as a stand-alone second charge with a different lender from your first mortgage, or it can be combined with your first mortgage under one structure, sometimes called a readvanceable mortgage, where the revolving HELOC limit grows automatically as the amortizing mortgage balance is paid down. Either way, the HELOC itself still behaves as revolving credit rather than a one-time lump-sum loan.

What loan-to-value limit applies to a HELOC in Canada right now?

The revolving HELOC portion on its own is capped at 65% of your home’s value, and combined with any amortizing mortgage balance you’re still carrying, the total can’t exceed 80%. This comes from OSFI’s Guideline B-20, a supervisory guideline rather than a law, and it applies directly to federally regulated lenders like the major banks. A credit union or other provincially regulated lender isn’t bound by this guideline the same way and may set a different limit, though many hold to a similar figure anyway. Whichever of the two numbers, 65% revolving-only or 80% combined, produces the lower dollar amount on your specific home and mortgage balance is the one that governs what you can borrow.

Do I have to pass a stress test to get a HELOC?

Yes, at a federally regulated lender. The lender has to confirm you could keep up with payments if the rate on the amount you’ve drawn moved higher, the same basic purpose behind the stress test applied to a new mortgage, just tested against a HELOC instead. What isn’t consistently confirmed across reliable sources is the exact qualifying rate used for a HELOC specifically, since the figures floating around for this product don’t match each other closely enough to repeat with confidence. What’s consistent is that the test exists and is tougher than qualifying at the HELOC’s starting rate.

Can I use a HELOC to pay for a secondary suite or a new build?

Yes, a HELOC is one route, though it isn’t the only one and doesn’t automatically beat the alternatives. The CMHC-insured refinance in our guide to paying for a secondary suite reaches up to 90% of a home’s post-renovation value as one lump sum, well above a HELOC’s uninsured 80% combined ceiling, but it’s built specifically around a legal secondary suite and comes with CMHC’s own insurance terms. A construction mortgage assumes no existing equity at all and funds a ground-up build in inspected stages instead. A HELOC fits best when you already have equity, want revolving access rather than one lump sum, and the project doesn’t need financing beyond what the 65%/80% ceiling allows.