What is a Home Equity Line of Credit (HELOC)?
First, the quick version
A HELOC (Home Equity Line of Credit) is a revolving line of credit secured against your house. In an easy way to think about it, it’s a huge credit card that your house cosigned with you.
You get approved for a limit (up to 65% of your home’s value) if you only have a HELOC on your home with no mortgage. You borrow what you want, when you want. You only pay interest on what you use. And you can pay it down and reuse it over and over again.
Why do people even want a HELOC?
Because life is expensive. And a HELOC is:
Cheaper than credit cards. Rates are often Prime + 0.5% to 1%.
Flexible. Renovations, tuition, debt payoff, helping your kids - take what you need, when you need it.
Reusable. Pay it back, borrow again, no re-application.
Investment-friendly. Some clients use HELOCs to fund a rental down payment or buy assets.
Home Equity Lines of Credit are extremely useful for expenses such as renovations.
But it’s not all sunshine
Here’s what the glossy bank brochures don’t tell you:
HELOC rates are variable. Prime goes up? So does your payment.
Payments are interest-only. Easy trap: never paying off the balance.
It can feel like free money. Until you wake up with $80K sitting on there and no plan.
HELOC vs Unsecured Line of Credit
Now, here’s where most Canadians get confused.
They think a HELOC is just another line of credit. Wrong.
HELOC = secured by your house. The lender knows you won’t walk away from a debt tied to your home. They reward that lower risk with lower rates.
Unsecured LoC = no collateral. Higher risk for the lender. Higher rates for you.
HELOC vs Unsecured Line of Credit (LoC)
| Feature | HELOC (Home Equity Line of Credit) | Unsecured Line of Credit |
|---|---|---|
| Collateral | Secured by your home | No collateral |
| Typical Interest Rate | Prime + ~0.50% to 1.00% (variable) | ~8% to 12%+ (variable) |
| Credit Limit | Up to 65% of value (or up to 80% combined with mortgage) | Based on income/credit score; lower limits |
| Payments | Interest-only minimum; can prepay anytime | Interest-only minimum; can prepay anytime |
| Cost of Borrowing | Lower (lender risk is reduced by collateral) | Higher (no collateral = higher lender risk) |
| Access to Funds | Revolving: borrow, repay, re-borrow | Revolving: borrow, repay, re-borrow |
| Discipline Risk | Feels like “cheap money” — easy to overuse | Easier to cap usage due to higher rates/limits |
| Potential Tax Treatment* | Interest may be deductible if funds are used to earn investment income* | Same principle may apply if used for investments* |
| Best For | Renovations, debt consolidation, readvanceable setups, strategic investing | Short-term cash flow gaps, smaller one-off needs |
*Always consult a qualified tax professional about interest deductibility based on your specific use of funds.
This is why HELOCs are so much cheaper. Your home is the insurance policy for the lender.
A quick example
Let’s say your home is worth $700,000. You owe $350,000 on your mortgage.
80% of value = $560,000
Subtract mortgage balance = $210,000 in usable equity
You could refinance your home into a HELOC/Mortgage combo, and add a Home Equity Line of Credit ($350,000 for your mortgage, $210,000 in available HELOC), or if you’re looking for funds right away to consolidate say $50,000, increase your mortgage balance to $400,000, making $160,000 available to access.
Result: You’ve unlocked available funds if you ever need them (emergency renovation, purchasing a new vehicle, etc) at a considerably lower rate than a car dealership or credit card could ever offer.
HELOCs can be especially useful for large purchases, like vehicles - avoiding high interest rates with dealerships.
HELOC vs Refinance
Both let you pull money out of your house. But:
Refinance = one-time cash-out, usually resets your amortization to 30 years.
HELOC = ongoing access, interest-only payments, no reset clock.
Savvy borrowers often do a hybrid mortgage + HELOC so they lock most of their loan in at a fixed rate while keeping flexible access to equity. Want to learn more? Keep reading below.
Refinancing Into a Mortgage + HELOC Combo
One option many Canadians don’t realize exists is the readvanceable mortgage - a hybrid product that combines a traditional mortgage with a HELOC.
Here’s how it works:
Your mortgage is split into two parts: a standard amortizing mortgage + a HELOC.
As you pay down the mortgage, that paid-down principal becomes instantly available on the HELOC side.
The HELOC limit grows automatically, giving you ongoing access to equity without reapplying.
Why people like it:
Ongoing flexibility for renovations, investments, or emergencies.
Cheaper than credit cards or personal loans.
Ability to lock in portions of the HELOC if you want fixed payments.
The caution: Because the credit keeps growing as you pay down your mortgage, some people treat it like an ATM and end up never reducing their debt.
Bonus: The Smith Manoeuvre Connection
If you’ve ever heard of the Smith Manoeuvre, you’ll know it’s one of Canada’s most talked-about wealth-building strategies.
Here’s the short version:
You use a readvanceable mortgage (mortgage + HELOC combo).
Every time you pay down your mortgage, your HELOC limit grows.
You borrow back that amount through the HELOC and invest it.
Over time, you slowly turn “bad debt” (your mortgage) into “good debt” (investments that may generate income, with interest that could be tax-deductible).
The Smith Manoeuvre deserves its own post (coming soon), but the key point is this: without a HELOC, you can’t do it.
The bottom line
A HELOC is one of the most flexible, cost-effective ways to borrow against your home. But flexibility is a double-edged sword - without discipline, it can keep you in debt forever.
Used wisely, though?
A HELOC can be your safety net for emergencies.
It can be your launch pad for renovations, investments, or debt consolidation.
Paired with a mortgage, it can even fuel advanced strategies like the Smith Manoeuvre to help you build wealth while paying down your loan.
At VeloMortgage, we don’t just set up HELOCs- we set them up with a plan. So whether you’re after flexibility, affordability, or a long-term wealth strategy, you’ll know your HELOC is working for you, not against you.
👉 Curious if a HELOC (or HELOC + mortgage combo) makes sense for you? Let’s run the numbers together.
Jeff Dinsmore
Mortgage Broker
FSRA # 10315
TMG - The Mortgage Group
VeloMortgage.ca