How a HELOC actually works
A home equity line of credit is a revolving loan secured against your property. You get a limit, draw what you need, pay interest only on the balance, and repay and redraw as you like. Most are variable rate, priced at a spread over prime, and most require interest-only minimum payments.
How much you can get
A standalone HELOC is capped at sixty-five percent of your home's value. Combined with your mortgage under a readvanceable product, total borrowing can reach eighty percent. On a million-dollar Toronto home with a four hundred thousand mortgage, that is up to four hundred thousand of available credit.
- Appraisal sets the value the limit is based on
- Lenders stress-test the full limit, not the balance
- Income and credit still have to qualify
The best uses
Renovations billed in stages, investment down payments, emergency reserves, and bridging timing gaps. In each case the common thread is that the money has a job and a repayment plan. The worst use is lifestyle spending, because interest-only minimums mean the balance can sit forever.
Risks worth respecting
The rate floats, so payments rise when prime rises. The lender can reduce the limit if property values fall sharply. And because the loan is secured by your home, a balance you cannot manage becomes a housing problem, not just a debt problem. Size the limit to what you will actually use.
Getting the best structure
Ask about readvanceable setups where the limit grows as you pay the mortgage down, multi-segment HELOCs that let you lock portions at fixed rates, and fee-free appraisals. The differences between lenders on these features are larger than the differences in rate.
Frequently asked questions
- Is HELOC interest tax deductible?
- Only on funds used to earn income, such as investments or rental property. Keep deductible and personal draws in separate segments for clean accounting.
- Does having a HELOC affect getting another mortgage?
- Yes. Lenders count a payment against the full limit even at a zero balance, which reduces what you qualify for on a new purchase.
- Can I get a HELOC with an existing mortgage?
- Yes, either behind your current first mortgage or combined with it in a readvanceable product. Combined products usually offer better pricing.