What is it?
A HELOC (home equity line of credit) is a credit line secured by your home. The bank sets a limit, and you can borrow, repay and borrow again within it. It revolves like a credit card, but because your home is the security the rate is far lower than a credit card.
A mortgage gives you the money once and you repay it in set payments over 25 or 30 years. A HELOC has no set repayment schedule. OSFI (the federal banking regulator) defines it in Guideline B-20 as "non-amortizing (revolving) credit" secured by a home.
If you open the line and never use it, you pay no interest. Interest is charged only on what you draw.
How does it work?
- Limit: the bank sets it from the appraised value, your remaining mortgage and your income. The limit is equal to or less than the charge registered on title.
- Drawing: you move money to your chequing account online or write a cheque. Interest starts the day you draw.
- Rate: usually variable, set as the lender’s prime rate plus a spread (for example, prime + 0.5%). When prime moves, your rate moves right away.
- Payments: most lenders require a minimum monthly payment, and it is often just that month’s interest. You can usually repay the HELOC part any time without penalty, but check your terms.
- Limit changes: if the home’s value drops a lot or your finances change, the bank can cut or freeze the limit. B-20 tells lenders to review it in those cases.
How much can you get? The 65% and 80% lines
OSFI’s Guideline B-20 draws two lines for federally regulated lenders such as banks. The interest-only revolving part (the HELOC) can be at most 65% of the home’s value, and any lending above 65% must be amortized like a mortgage. On top of that, any mortgage above 80% of value must by law be insured, and a loan that takes out extra money cannot be insured, so in practice the mortgage and HELOC together stop at 80%.
| Limit (share of appraised value) | |
|---|---|
| Revolving HELOC part (interest only) | Up to 65% |
| Mortgage + HELOC combined | Up to 80% |
| Equity you must keep | At least 20% |
65% and 80% are the maximums OSFI expects of federally regulated lenders. A bank can set lower limits, and provincially regulated credit unions can have different rules.
Example calculation
Suppose the appraised value is $900,000 and the mortgage balance is $450,000.
| Calculation | Amount |
|---|---|
| Revolving-part cap (65%) | $585,000 |
| Total cap (80%) | $720,000 |
| Total cap minus mortgage balance | $720,000 − $450,000 = $270,000 |
| Maximum HELOC limit | $270,000 (the lower of the two) |
An estimate for reference only. The real limit can be lower because of income (GDS/TDS), credit score and the bank’s own rules.
Readvanceable mortgages (mortgage + HELOC in one)
The big banks sell products that bundle a mortgage and a HELOC. The names differ by bank, but they are often called readvanceable mortgages. Every time you pay down mortgage principal, your HELOC limit grows by the same amount automatically.
This is convenient, but because you can re-borrow what you repaid, the total debt can stay flat for years. B-20 applies the same 65% limit and review rules when a HELOC is part of a combined or linked product.
A bundled product is usually registered on title as one charge for the whole limit (for example, 80% of the value). Moving to another bank later means a new registration and possibly legal fees. Check the product documents.
Title and closing
A HELOC is registered against your home as a charge (a mortgage). Ontario’s regulation O. Reg. 191/08 calls it "a mortgage securing a line of credit". So opening one can involve legal or registration costs, and when you sell, the balance must be paid off and the charge discharged from title.
Even if the balance is zero when you sell, the discharge still has to be done. Tell your lawyer about the HELOC well before closing.
If you use money drawn from a HELOC on another property as your down payment, the lender sees it as borrowed money, not savings, and looks at it more closely (OSFI B-20). B-20 also says lenders’ debt ratio rules (GDS/TDS) should cover payments on all your other credit, such as credit cards or a second mortgage. Each lender sets its own method, so ask how it will count the HELOC payment.
What to watch out for
- Interest-only payments never reduce the debt. Pay interest only for ten years and you still owe the full amount. B-20 notes that HELOC balances tend to persist.
- The rate is variable, so when prime rises your interest cost rises at once. When the Bank of Canada changes its policy rate, bank prime usually follows.
- A limit is not income. Using a HELOC to make mortgage payments is a sign of trouble, and B-20 warns that it can hide financial distress from the lender.
- The bank can cut the limit. If home values fall sharply or your income drops, the money may suddenly be unavailable.
- Because it sits on title, it must be dealt with whenever you sell or refinance.
- If a mortgage broker arranges the HELOC, you must get a disclosure statement with the limit, how the rate is set, fees and the minimum payment. It must reach you at least two business days before you first sign, pay or take on any obligation for the loan, unless you agree in writing to skip that wait (O. Reg. 191/08, section 7).
HELOC vs refinance vs unsecured line of credit
| HELOC | Refinance | Unsecured line of credit | |
|---|---|---|---|
| Security | Your home | Your home | None |
| Rate | Prime plus a spread (variable) | Fixed or variable | Usually higher than a HELOC |
| How you get the money | Draw as needed | All at once | Draw as needed |
| Repayment | Minimum is usually interest only | Set payments | Minimum payment (often interest plus some principal) |
| Limit | 65% of value (80% in total) | 80% of value | Based on income and credit |
Example
Your Richmond Hill home is appraised at $900,000 and the mortgage balance is $450,000. The bank opens a $270,000 HELOC and registers it on title. The rate is prime + 0.5% (the spread is just an example).
You draw $60,000 for a kitchen renovation. Interest is charged on the $60,000 only; the unused $210,000 costs nothing. The minimum payment is interest only, but you repay $20,000 from a bonus, so the balance drops to $40,000 and the available room goes back up to $230,000. Two years later you sell, and your lawyer pays off the balance and discharges the HELOC from title.
What the law and official sources say
Quotes are copied word for word. The "In plain words" lines are our explanation, not an official translation.
A HELOC … is a form of non-amortizing (revolving) credit that is secured by a residential property. Unlike a traditional residential mortgage, most HELOCs are not constructed to fit a pre-determined amortization, although regular, minimum periodic payments are generally required by most lenders.In plain wordsA HELOC is revolving credit secured by a home. It has no set repayment schedule, but most lenders require a minimum payment each period.
Source: osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017 · checked Oct 30, 2026
OSFI expects FRFIs to limit the non-amortizing HELOC component of a residential mortgage to a maximum authorized LTV ratio of less than or equal to 65 percent.In plain wordsFederally regulated lenders should cap the interest-only HELOC portion at 65% of the home’s value.
Source: osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017 · checked Oct 30, 2026
Additional mortgage credit (beyond the LTV ratio limit of 65 percent for HELOCs) can be extended to a borrower. However, the loan portion over the 65 percent LTV ratio threshold should be amortized.In plain wordsA lender can go above 65%, but the part above 65% must be a regular amortizing mortgage, not an interest-only line.
Source: osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017 · checked Oct 30, 2026
FRFIs should review the authorized amount of a HELOC where any material decline in the value of the underlying property has occurred and/or the borrower’s financial condition has changed materially. This expectation also applies where a HELOC is structured as part of a consolidated or linked mortgage loan product.In plain wordsIf the home’s value drops a lot or your finances change a lot, the bank must review your HELOC limit. This also applies to bundled (readvanceable) products.
Source: osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017 · checked Oct 30, 2026
the revolving nature of HELOCs can also lead to greater persistence of outstanding balances, and greater risk of loss to lenders. As well, it can be easier for borrowers to conceal potential financial distress by drawing on their lines of credit to make mortgage paymentsIn plain wordsOSFI warns that revolving balances tend to stick around, and that using a HELOC to pay the mortgage can hide financial trouble.
Source: osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017 · checked Oct 30, 2026
A mortgage brokerage that enters into or arranges a mortgage securing a line of credit must give the borrower an initial disclosure statement that includes the following information: 1. The initial credit limit, if it is known at the time the disclosure is made. 2. The annual interest rate, or the method for determining it if it is variable. 3. The nature and amounts of any non-interest charges. 4. The minimum payment during each payment period or the method for determining it.In plain wordsOntario law treats a HELOC as a mortgage securing a line of credit. A mortgage brokerage that arranges one must give you a statement showing the limit, how the rate is set, fees and the minimum payment.
Source: ontario.ca/laws/regulation/080191 · checked Oct 30, 2026
Common questions
How is a HELOC different from a second mortgage?
A second mortgage gives you the money once and you repay it in set payments. A HELOC revolves: you draw, repay and draw again within a limit, and the minimum payment is usually interest only. A second mortgage is registered behind your first mortgage. A HELOC may be registered behind it too, or, in a bundled product, as one first-position charge together with the mortgage.
Is HELOC interest tax-deductible?
Only interest on money used to earn income (for example, investments) may be deductible. Interest on money spent on renovations or living costs is not. Always check with an accountant.
Does an unused HELOC cost anything?
There is no interest if you do not draw. There may be appraisal or registration costs to open it, and some products have an annual fee, so read the terms. An open limit can also count as debt when you apply for other loans.
Can the bank cut my limit without warning?
Yes. If the home’s value drops sharply or your income or credit worsens, the bank can reduce or freeze the limit. OSFI’s B-20 requires that review. Do not rely on a HELOC alone as your emergency fund.
What happens to the HELOC when I sell?
The balance must be paid in full and the charge discharged from title, even if the balance is zero. Tell your lawyer early and it is settled from the sale proceeds on closing.
Guides that use this term
Sources checked
- OSFI, Residential Mortgage Underwriting Practices and Procedures, Guideline B-20 (2017), incl. footnotes 15 and 16 · checked Oct 30, 2026
- O. Reg. 191/08: Cost of Borrowing and Disclosure to Borrowers (e-Laws) · checked Oct 30, 2026
- Eligible Mortgage Loan Regulations, SOR/2012-281 (insured loans must be for a purchase and amortize) · checked Oct 30, 2026
- Bank of Canada, Understanding our policy interest rate (link to prime) · checked Oct 30, 2026