The Three Things You Need to Know About HELOCs in Canada

1. You can access up to 65% of your home’s value

In Canada, you can access up to 65% of your home value through a home equity line of credit. However, it’s also important to remember that your outstanding mortgage loan balance + your HELOC cannot equal more than 80% of your home value.

To determine how much equity is available for you to draw from your HELOC, start by taking your home’s current market value and multiplying it by 80%. Next, subtract the balance of your mortgage.

The remaining figure shows how much you can access through a HELOC, so long as the amount does not equal more than 65% of your home’s market value.

2. Your HELOC funds will be available through a revolving line of credit

With a home equity line of credit, you do not receive the entire credit as a lump sum. Instead, you can draw from the line of credit similar to a credit card. You use as little or as much as you want, up to your limit. The HELOC’s interest rate is typically much lower than a traditional line of credit but higher than a variable mortgage rate, with the rate tied to Prime. HELOC rates are at Prime + a number that is set by your lender.

3. You make interest-only payments

Like a traditional line of credit or credit card, you must make payments for any withdrawals made but interest-only payments. To pay off the balance of a home equity line of credit, you will need to make extra payments at your discretion. Unlike refinancing, you don’t need to pay a prepayment penalty to get a home equity line of credit on your home, since the HELOC functions as a second mortgage that goes behind your existing mortgage.