What is a home equity line of credit (HELOC) and how does it work in Ontario?
A home equity line of credit (HELOC) is a revolving credit facility secured by your home. Your lender registers a charge on title, and you can borrow up to an approved limit at any time, repay it, and borrow again — much like a credit card but secured against real estate.
In Canada, lenders can advance up to a certain percentage of your home's appraised value through a HELOC, less what you owe on your mortgage. The interest rate on a HELOC is typically variable and tied to the lender's prime rate, which means your payments change as rates move. Most HELOCs require interest-only payments on the drawn balance, though you can always pay down the principal.
HELOCs are popular for renovations, investments, or emergency funds because you only pay interest on what you actually draw. However, the variable rate means costs can increase significantly if rates rise. Some borrowers also find the revolving nature makes it easy to accumulate debt without a fixed payoff schedule. If you use a HELOC, having a repayment plan matters. A lawyer reviews the HELOC charge at closing to ensure the documentation accurately reflects your agreement with the lender.
Key takeaways
- A HELOC lets you borrow up to an approved limit against your home equity, revolving like a credit line.
- Interest is only charged on what you draw, but rates are usually variable.
- There is no fixed payoff schedule, so discipline around repayment is important.
- Your lawyer reviews the HELOC charge on title at closing.