HELOC

Home Equity Line of Credit

A revolving line of credit secured by your home, usually at a variable rate, capped at 65% of the home's value by federal rules.

A home equity line of credit (HELOC) is a revolving line of credit secured by your home. You can borrow, repay and borrow again up to a set limit, and you pay interest only on what you use. Your home is the collateral, registered through a lawyer or notary. If you do not repay, your lender may take possession of the home.

Federal rules shape how much you can borrow. The Office of the Superintendent of Financial Institutions (OSFI) expects federally regulated lenders to cap a HELOC at 65% of the home's value. When a HELOC is combined with a mortgage, the overall limit cannot exceed 80% of the home's value. Any lending above 65% must be amortizing, which means it is paid down on a schedule.

Most HELOCs have a variable rate tied to the lender's prime rate. That rate can change when the Bank of Canada changes its policy rate. Federally regulated lenders must give written notice within 30 days of a rate change. Many lenders allow interest-only payments, which never reduce what you owe.

The Financial Consumer Agency of Canada lists the main risks. Rising rates can make large balances hard to repay. Borrowing reduces your equity, which can limit your options if you sell. Easy access to funds can also encourage overborrowing, so set your own limit below the lender's.

Investors often use a HELOC to fund a rental property. The Canada Revenue Agency lets you deduct interest on money borrowed to buy or improve a rental property. Interest is not deductible when the borrowed money is used for personal purposes. Keep investment draws separate from personal spending so you can show where the money went. For your own situation, speak to a tax professional.

General information only, not legal, tax, or financial advice. Rules change and vary by province; confirm the current details with the relevant authority before you rely on them.