Using a home equity line of credit (HELOC) to pay off debt can cut your interest costs because HELOC rates are usually far lower than credit card rates. But it converts unsecured debt into debt secured by your home, so if you fall behind you risk your property. A HELOC makes sense only if you have enough equity, stable income, a firm repayment plan and the discipline not to run the cards back up. This guide explains how HELOCs work in Canada, how much you can borrow, the real savings, the risks and the alternatives.
What is a HELOC?
A home equity line of credit is a revolving credit line secured by your home. Like a credit card, you can borrow, repay and borrow again up to a limit. Unlike a credit card, the lender registers a charge against your property, which is why the interest rate is lower.
In Canada, HELOCs are typically offered either as a standalone line or combined with your mortgage in a “readvanceable” product, where the available credit grows as you pay down the mortgage principal. Most HELOCs carry a variable interest rate tied to the lender’s prime rate, for example prime plus a margin.
How much can you borrow with a HELOC?
Federally regulated lenders follow guidelines from the Office of the Superintendent of Financial Institutions (OSFI). Under these rules, the revolving HELOC portion is limited to 65% of your home’s value, and the total of your mortgage plus HELOC is generally limited to 80% of the home’s value.
Here is a simplified example:
| Item | Amount |
|---|---|
| Appraised home value | $600,000 |
| 80% maximum combined borrowing | $480,000 |
| Current mortgage balance | $380,000 |
| Potential HELOC room | $100,000 |
In this case, the homeowner could potentially access up to $100,000, subject to qualification. If the mortgage balance were higher, say $470,000, there would be only $10,000 of room. You also have to qualify based on your income, credit score and existing debts, and lenders apply stress-test rules when assessing your ability to pay.
How much can a HELOC save on interest?
The appeal is simple: credit cards in Canada commonly charge around 20% or more, while HELOC rates are typically a few percentage points above prime. The gap can be large.
Imagine $30,000 of credit card debt at 20.99% and a HELOC at 7%. In the first year, interest on the cards would be roughly $6,300 if the balance stayed the same, compared with roughly $2,100 on the HELOC. That is a difference of over $4,000 a year, money that could go toward principal. To see how card interest really accumulates, read our guide on how credit card interest is calculated in Canada.
These are rounded, illustrative numbers. Your savings depend on your actual rates, how fast you repay and whether rates change over time.
The risks of using home equity to pay off debt
Your home becomes collateral
Credit card debt is unsecured. If you cannot pay, the consequences are serious but your home is not directly on the line. With a HELOC, the lender has a claim on your property. Persistent default can ultimately lead to enforcement against the home.
Interest-only payments can trap you
Many HELOCs require only monthly interest payments. That keeps the minimum low but means the balance never falls unless you choose to pay more. People who make only the minimum can carry the same balance for many years.
Variable rates can rise
Because HELOCs typically track prime, your interest costs increase when the Bank of Canada raises its policy rate and lenders raise prime. Budget for higher rates, not just today’s rate.
The cards are still open
The biggest danger is behavioural. After moving balances to a HELOC, many people find their credit cards empty and available. If spending habits do not change, they end up with a HELOC balance and new card balances, which is a worse position than before.
Lenders can change the terms
A HELOC is typically a demand facility. Lenders may have the right to reduce your limit or change terms under certain conditions, such as falling home prices or changes in your credit profile.
Costs to set up
Opening a HELOC may involve appraisal, legal or registration fees, depending on the lender and whether it is part of a new mortgage. Ask for a full list of costs.
A step-by-step plan if you choose a HELOC
- List every debt with its balance, interest rate and minimum payment.
- Calculate your equity and potential HELOC room using a realistic home value.
- Compare rates from your current lender and others, and ask about fees.
- Set a fixed repayment schedule. Treat the HELOC like an amortizing loan: decide how much principal you will pay monthly and set up automatic payments.
- Pay off the high-interest debts directly from the HELOC.
- Lower or close card limits you do not need, keeping one card for essentials if that helps your credit history.
- Track progress monthly. If the balance is not falling, adjust your budget immediately.
Example repayment schedule
If you move $30,000 to a HELOC at 7% and commit to paying $700 a month, you would clear the balance in just over four years, assuming the rate stays constant. Paying $1,000 a month would cut that to under three years. Compare that with making only the interest payment of about $175 a month, which would leave the full $30,000 outstanding indefinitely.
HELOC vs other debt solutions
| Option | Security | Typical cost | Main risk |
|---|---|---|---|
| HELOC | Your home | Low variable rate | Property at risk; rising rates |
| Unsecured consolidation loan | None | Moderate fixed rate | Approval depends on credit |
| Balance transfer card | None | Low promo rate plus fee | Rate jumps after promo period |
| Debt management plan | None | Reduced or waived interest in many cases | Cards usually closed |
| Consumer proposal | None | Repay a portion of debt | Credit impact; formal process |
For a deeper look at alternatives, see our guides to debt consolidation in Canada, balance transfer savings and debt management plans.
When a HELOC is a reasonable choice
- You have significant equity and the 80% combined limit leaves comfortable room.
- Your income is stable and you could handle rate increases.
- The debt came from a one-time event, not ongoing overspending.
- You will commit to fixed principal payments and close or reduce card limits.
- Your total debt load is manageable relative to income. Check your debt-to-income ratio.
When to avoid a HELOC
- You are already struggling with your mortgage or other secured payments.
- Your income is unpredictable or likely to fall.
- You have tried consolidation before and the cards filled up again.
- Your total unsecured debt is so high that repayment within a few years is unrealistic. A formal option such as a consumer proposal may be safer because it does not put your home at extra risk.
- You plan to sell the home soon, since the HELOC must be repaid from the sale proceeds.
HELOC vs refinancing your mortgage
A HELOC is not the only way to tap home equity. Some homeowners refinance their mortgage to a larger amount and use the extra funds to pay off consumer debt. The two approaches behave differently:
- Refinancing rolls the debt into your mortgage with a fixed or variable term and a set amortization. Payments include principal, so the debt shrinks automatically. However, spreading credit card debt over a 25-year amortization can mean paying interest on it for decades unless you make extra payments. Breaking an existing mortgage before the end of its term can also trigger a prepayment penalty.
- A HELOC is more flexible and can be repaid quickly without penalty, but it relies on your discipline because the minimum payment may be interest-only.
- A home equity loan (a lump-sum loan secured by your home with fixed payments) sits between the two and is offered by some lenders.
If you are near your mortgage renewal date, ask your lender to compare all three options, including penalties, fees and the total interest cost over the period in which you realistically expect to repay the debt.
Protecting yourself after consolidating
The months after consolidation are critical. Build a small emergency fund so that unexpected costs do not go back on a credit card. Review your budget monthly, and set a target date to bring the HELOC balance to zero. Many people find it useful to keep the HELOC at a separate institution from their everyday bank account, or to ask the lender to reduce the HELOC limit as the balance falls, so the available credit does not become a temptation. If you share finances with a partner, agree on the plan together, because a HELOC secured on a jointly owned home affects both owners.
Questions to ask the lender
- What is the rate, and how is it linked to prime?
- Is the minimum payment interest-only?
- What fees apply for setup, appraisal, legal work and discharge?
- Can part of the balance be converted to a fixed-rate term?
- Under what conditions can the limit be reduced or the line called?
- How does the HELOC interact with my mortgage renewal?
Frequently asked questions
Is it smart to use a HELOC to pay off credit cards?
It can lower your interest cost substantially, but it is only smart if you repay the HELOC on a fixed schedule and avoid new card debt. Otherwise it can make your situation worse and put your home at risk.
How much equity do I need for a HELOC in Canada?
Under OSFI guidelines for federally regulated lenders, the combined mortgage and HELOC generally cannot exceed 80% of the home’s value, so you need at least 20% equity, and more to leave meaningful room.
Does a HELOC affect my credit score?
Applying creates a hard inquiry, and the HELOC appears as a credit line on your report. Paying off cards can lower your card utilization, which may help, but missed HELOC payments will hurt your score.
Can I get a HELOC with bad credit?
It is harder. Lenders assess credit history and income. Some alternative lenders offer home equity loans to borrowers with weaker credit, but usually at higher rates and fees.
What happens to my HELOC if I sell my house?
The HELOC is secured against the property, so it is normally repaid from the sale proceeds when the charge is discharged.
Disclaimer: This article is general information about debt and borrowing in Canada, not financial or legal advice. Lending rules, rates and product terms change. Speak with a qualified financial professional, your lender, a non-profit credit counsellor or a Licensed Insolvency Trustee before using home equity to repay debt.
