Home » Mortgages » What is a Home Equity Line of Credit or HELOC?

What is a Home Equity Line of Credit or HELOC?


A Home Equity Line of Credit or HELOC is a secured credit wherein the loan is backed by your home equity. It is a revolving line of credit, meaning you can borrow and repay multiple times before you max out your credit limit.

HELOC is becoming an increasingly popular form of credit in Canada and over 3 million Canadians have availed this facility to meet their financial needs. However, if you are considering applying for a HELOC, here are a few characteristics you must consider first:

The maximum amount of HELOC in Canada

In Canada, you can avail home equity line of credit not exceeding 65% of your home value. But if you have an outstanding mortgage on your home, the amount of HELOC combined with the mortgage balance cannot exceed 80% of your home value.

Check whether you qualify for a HELOC

To qualify for a home equity line of credit, you must pass the “stress test”, which helps the lender determine whether you will be able to repay the loan repayment. For this, the lender will check your credit score, the stability of your income, etc.

Apart from your financial fitness, you must also

  • Prove that you own the house that you are willing to avail a HELOC against.
  • Provide the details of the outstanding mortgage, if any.
  • Get your home assessed for its current value. 

Understand the terms of repayment

As mentioned before, HELOC is a revolving line of credit. The entire credit that can be availed against your home is not advanced to you upfront. Instead, you can choose to withdraw as per your needs, and you will be required to pay interest only on the amount withdrawn.

You will be required to set up a monthly payment plan wherein the amount will be debited to your bank account on the same day every month. However, you can choose to repay the withdrawal in full by making extra payments as per your convenience and discretion, without worrying about a prepayment penalty.

Advantages and Disadvantages of HELOC

As with every other financing vehicle, HELOC also has its own set of advantages and disadvantages. Before you decide to go through with your HELOC application, examine the following pros and cons of a HELOC:


  • A home equity line of credit is easy to avail.
  • Its interest rates are usually lower than those of a traditional line of credit.
  • You can withdraw as little or as much as you need (within your credit limit), and pay interest only on the amount you have borrowed.
  • It can be repaid earlier by making extra payments, and no prepayment penalties are involved. 


  • Repayment of the loan requires discipline.
  • Since the credit is easy to avail, it is equally easy to spend, and you might end up carrying the debt for a longer duration.
  • Missing the instalments of repayment can lead to losing possession of your home.

The Bullish takeaway

Before securing financial aid, it is essential to scrutinize your needs and try to use your savings to meet them first. However, if you must avail of a loan or a line of credit, it is always advisable to consult your financial planner first.

No Comments

Leave a Comment