A Home Equity Line of Credit, or HELOC for short, is an increasingly popular option for Canadians looking to access the value of their homes without having to go through mortgage refinancing. HELOCs offer maximum flexibility with low interest rates, letting you control just how much money is borrowed when it’s accessed, and for what purpose. A HELOC can be used for a variety of purposes, such as debt consolidation or home improvements. The only requirement for a Canada home equity line of credit is that you own a property with equity. Let’s take a look at the features and benefits offered by this unique home loan solution — our guide to Canada home equity line of credit has everything you need to know!
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What is a home equity line of credit in Canada?
Canada’s home equity line of credit is a useful, flexible financial tool. It allows homeowners to access the equity in their homes by taking out a line of credit secured against the property. These are typically used for large purchases like home renovations, as well as paying for educational expenses or consolidating debt. However, a home equity line of credit can be used for essentially any purpose — they are not restricted the way loans or other financial products are. Interest rates on Canada home equity lines of credit are generally very competitive, making it an attractive borrowing option. Make sure you understand the terms and conditions before you sign up for a Canada home equity line of credit – it could save you money in the long run.
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How does a home equity line of credit work in Canada?
In general, a line of credit has a maximum threshold. The borrower can draw down the line of credit whenever they need, as long as they don’t exceed the threshold. When the line of credit has a balance, it will begin to accrue interest. Usually, the borrower is only required to make interest payments and the balance can be carried indefinitely. In other words, the borrower can pay down the balance as it suits them rather then having to make consistent, monthly payments. Lastly, lines of credit never disappear as a form of financing the way a loan would. You can continue to access the funds, pay off the balance and repeat. Should you ever need an emergency source of financing — your line of credit will always be there.
In terms of the maximum threshold, a home equity line of credit is secured by the equity in your home. The equity in your home is calculated as the market value of the property, less the outstanding balance of the mortgage or other obligations against the property. Normally, banks and lender will extend a percentage of the equity in your home as the limit of a Canada home equity line of credit. This is done so the banks can have some security they will be able to recoup any losses. Because home equity lines of credit are secured by the equity in your home, the interest rates are lower and more competitive.
Canada home equity line of credit rates
As mentioned above, Canada home equity lines of credit tend to have low interest rates because they’re secured by property. Currently, HELOC interest rates in Canada are usually below 9%. Although, the rate that is extended to you depends on your credit score and history as a borrower. In addition, HELOC rates are often variable so the bank’s prime rate plays a role in the interest rate as well. Credit card rates are usually 20% and the average interest rate on loans is 8.42%. As you can see, Canada home equity lines of credit are very competitive in comparison to other financial products.
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How to get a home equity line of credit in Canada
In order to be eligible for a home equity line of credit in Canada, you must own a home that has positive equity. To calculate your home equity, simply determine the current market value of your home and subtract the mortgage balance and any other outstanding obligations. From there, you can begin the process of obtaining a home equity line of credit.
To start, it’s important to find the right bank or lender, so shop around to compare interest rates and other costs associated with the product. Ensure you meet any prerequisites set out by the lending institution, such as owning a certain amount of equity in your home and having a good credit history. Once you’ve found the perfect lender, collect the appropriate documents needed and apply online or at a bank branch to receive your HELOC. As always, make sure you read all terms and conditions before agreeing to take on any credit solutions.
What bank is best for HELOC in Canada?
Generally speaking, the big 5 banks are the best resource for home equity lines of credit. This includes BMO, Scotiabank, RBC, TD and CIBC. They offer the lowest rates and are reliable given their extensive track record. In addition, most Canadians have a mortgage or other financial products with one or more of the big 5 banks which may make it easier to have a HELOC with them too.
However, you might want to consider alternative banks or credit unions instead of the big 5 banks. For instance, Meridian, HSBC, National Bank and Tangerine offer HELOC products as well. Using a lender other than the big 5 could be ideal if you have bad or no credit, or an unfavorable lifestyle in the eyes of the bank, such as being self-employed. On the contrary, other banks may have less competitive interest rates and terms compared to the big 5 banks.
Canada Home Equity Line of Credit Options
Below is a summary of some HELOC products available to Canadians.
| HELOC Product | Terms and Specifications |
| BMO Homeowner’s Line of Credit | – Up to 65% of your home’s value – Starting at $5,000 |
| TD Home Equity FlexLine | – Up to 80% of your home’s value – Option to split balance between a fixed and variable interest rate |
| CIBC Home Power Plan Line of Credit | – Up to 80% of your home’s value – Starting at $10,000 |
| RBC Homeline Plan | – Up to 80% of your home’s value – Choose between fixed and variable interest rate |
| Scotia Total Equity Plan | – Up to 80% of your home’s value – Option to link with other Scotiabank financial products |
| Tangerine Home Equity Line of Credit | – 6.95% interest rate |
| HSBC Home Equity Line of Credit | – 6.45% interest rate (equivalent to the prime rate) |
| National Bank Home Equity Line of Credit | – 7.45% interest rate – Up to 65% of your home’s value |
| Meridian Flexline Mortgage | – Up to 80% of your home’s value |
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Is HELOC a good idea in Canada?
A Canada home equity line of credit is a useful and popular product. For many Canadians, obtaining a HELOC is a logical idea. But here are some of the benefits of a HELOC so you can decide for yourself:
- Flexible. Borrowers are able to draw down the line of credit whenever they’d like. From there, the borrower is only required to pay interest. There are no fixed payment requirements with a HELOC, the borrower can pay down the balance in whatever way suits them.
- Competitive rates. HELOCs have lower interest rates than other financial products, such as credit cards or loans.
- Never goes away. As long as you own your home, a Canada home equity line of credit will always be available to you. It can be used as an emergency fund should you need it in the future — especially for things like unexpected home repairs.
What is the downside to a HELOC?
Before pulling the trigger on a HELOC application, it’s important to consider some of the downsides too. Let’s take a closer look below.
- Variable interest. A HELOC’s interest rate is usually determined using the prime rate plus an additional rate. If the prime rate increases, you might have to pay more interest unexpectedly.
- Over leveraging. Just because there’s equity in your home, that doesn’t mean you should leverage it. If you over leverage yourself, you can run into financial problems down the road and may even lose your home. It’s best to live below your means!
- Difficult approval. It can be challenging to get approved for a HELOC, especially compared to other financial products.
- Ongoing debt. Since home equity lines of credit only require interest payments, you might be tempted to carry a balance indefinitely. In addition, you might be motivated to spend more than you should since the funds are available. However, this burden of ongoing debt can weigh on you.
- Demand payments. In most cases, Canadians can carry a balance on their HELOC indefinitely and only make interest payments. But the lender can demand you pay part or all of your HELOC balance at any time. If this were to happen, you might experience some financial strain.
Financing using Canada home equity lines of credit
HELOCs are a great way to access equity in your home. With this type of financing, you can borrow against the value of your home and use it for things like renovations, investments or even debt consolidation. The best part is that HELOCs offer flexible repayment options and low interest rates – making them an attractive option for many Canadian homeowners. If you’re thinking about taking out a HELOC, be sure to shop around and compare offers from different lenders before making a decision.
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