*This post was created in collaboration with Alpine Credits
There are many perks to being a homeowner, but one of the biggest benefits is the equity you build in your home. When you have a lot of home equity, you can tap into it to finance various expenses. That particular expense might be anything from a large addition to your house, paying off your existing car loan, or paying for your child’s tuition. Whatever that cost might be, you can pay it down with a home equity loan in Canada.
Key Points
1. You can borrow against your home equity through a home equity loan, a HELOC, a cash-out refinance, or a reverse mortgage.
2. In Canada, you can generally borrow up to 80% of your home’s value (up to 65% on a HELOC), minus your outstanding mortgage.
3. You typically need at least 20% equity, enough income, and decent credit, though alternative lenders like Alpine Credits are more flexible.
4. Home equity is best used for value-adding or money-saving goals, such as renovations or consolidating high-interest debt, since your home is the collateral.
How To Borrow Using Your Home Equity?
There are a few different ways you can tap into your home equity. In general, when you take out a loan using the equity in your home, it’s considered a second mortgage. There are two types of second mortgage loans: home equity loans and home equity lines of credit (HELOCs).
These loans are considered second mortgages because a loan is taken out against your property that is already in the midst of being mortgaged. That means if you default on the loan, the lender has the right to foreclose on the house and sell it to recuperate their loss.
Home Equity Loan In Canada
A home equity loan is a loan that uses your house as collateral. With a home equity loan, you can usually borrow a maximum of 80% of the property’s appraised value, minus what you have left to pay on your original mortgage.
You’ll be charged interest and have fixed installment payments.
How Can I Get One?
To get a home equity loan you need to own a house with equity in it. In general, to qualify for a home equity loan you’ll need:
- To have your home appraised by your lender
- At least 20% equity in your home
- A high enough income to support the payments and a debt-to-income that shows you have enough funds to make payments including your current bills and debts.
- A good credit score
HELOC (Home Equity Line Of Credit)
There are a few notable differences between a home equity loan and a home equity line of credit. The first difference is that a HELOC is a line of revolving credit, as opposed to a loan, which is one large sum of money. Because of this, you can use that line of credit at your leisure and regain access to the full limit as you pay off the balance.
With most lenders, you can borrow up to 65%-80% of your property’s appraised value. However, the HELOC plus outstanding mortgage should equal less than 80% of their home value. Once your line of credit is secured, you can borrow from it as you wish, as long as you keep up with the minimum monthly payments.
How Can I Get One?
You’ll be able to open a line of credit through your bank or private mortgage lenders. However, banks will typically require a high credit score in order for you to qualify.
Potential borrowers must first have their property appraised to make sure they have enough home equity to qualify for a HELOC.
Can You Get A HELOC Or Home Equity Loan In Canada With Bad Credit?
Home equity loans and HELOCs are generally easier to secure because they’re secured by your home. However, qualifying with big banks can still be difficult if you have bad credit.
Fortunately, there are alternative lenders, like Alpine Credits, that make it easy for bad credit borrowers to secure a home equity loan or HELOC. If you own your home, you can tap into your equity through a home equity loan from Alpine Credits in less than 24 hours. Simply apply online to get a no-obligation quote and find out how much you can qualify for.
Applying with Alpine Credits won’t have any negative effect on your credit score. And unlike conventional lenders, approvals with Alpine Credits are based on your home’s equity, not your income or credit profile.
Can A Home Equity Loan In Canada Affect Your Credit?
Your credit score can be affected by many factors, including credit history (average age of your credit accounts). Having a few old accounts is generally good for your credit because it increases the average age of your credit accounts. But when you add a new credit account to the mix, you’re effectively reducing the average age of your credit history, which may negatively affect your credit.
Your payment history is generally an important factor used in calculating your credit scores. As such, missed payments on your home equity loan in Canada may also affect your credit negatively.
Can You Pay Off A Home Equity Loan In Canada Early?
If you’ve received a raise at work or happened upon a financial windfall, you may have more money available to pay off your loan early. This can save you a great deal in interest charges over the loan term.
That said, there may be fees associated with early loan repayment that you should find out about first. Lenders often charge early repayment penalty fees, which can cost thousands of dollars. In this case, the extra charges may cancel out any potential interest savings by paying your home equity loan off early. So make sure you crunch the numbers before making a decision.
Other Ways To Access Your Home Equity
Having equity in your home opens up plenty of financing opportunities. In addition to a HELOC or home equity loan, there are a couple of other ways to access your equity:
Cash Out Refinancing
A cash-out refinance refers to refinancing your existing mortgage to a new mortgage for a larger amount. Essentially, you are taking out a new, bigger loan to pay off your old loan, and the difference between the two loan amounts can then be cashed out. This allows you to convert your home equity into cash, which you can then use to cover a variety of expenses.
Keep in mind that a cash-out refinance will increase your mortgage balance since you’re taking out a bigger loan amount.
Reverse Mortgage
A reverse mortgage is a unique type of home equity loan that is available to homeowners aged 55 and older. Many Canadians who apply for a reverse mortgage do so to help fund their retirement if their pensions aren’t adequate enough to keep them comfortable throughout their golden years.
With a reverse mortgage, you can borrow up to 55% of your home’s value. You can receive the funds in one lump sum or in regular installments, and no loan payments are required unless you sell your home or pass away. If you sell your home, you’ll need to pay the loan back in full, and if you die, the proceeds of the sale of your home will be used to pay off the loan.
Watch mortgage broker Dave Johnson explain each of the different methods you can use to access your home equity.
How To Calculate Your Home Equity
If you’ve been paying off your mortgage for several years, then you likely have at least some home equity. Generally, you’re likely to have some equity in your home if:
- You’ve paid a significant amount of your mortgage
- Your home value increased
- You’ve renovated your home (in a way that added value)
The Home Equity Formula
Home Equity = Current Home Value – Outstanding Mortgage Balance
Working out how much equity you have is simple: subtract what you still owe on your mortgage from your home’s current market value. Here is a quick example.
| Current Home Value | $376,000 |
| Outstanding Mortgage | $200,000 |
| Home Equity | $176,000 ($376,000 – $200,000) |
How Much Can You Borrow? HELOC vs. Home Equity Loan In Canada
In Canada, lenders typically allow homeowners to borrow up to 80% of their home’s value on a home equity loan, less any outstanding balance on their first mortgage. For HELOCs, you can borrow up to 65% to 80% of the value of your home.
HELOC
Let’s say your lender allows you to borrow up to 65% to 80% of your home’s equity for a HELOC minus the outstanding mortgage balance.
Assuming you can borrow up to 65% and you have a home worth $500,000 and an outstanding balance of $300,000, you’d be able to borrow:
| Home Value | $500,000 |
| Maximum Amount You Can Borrow (65%) | $325,000 ($500,000 x 65%) |
| Outstanding Mortgage | $300,000 |
| Total Amount You Can Borrow | $25,000 ($325,000 – $300,000) |
Home Equity Loan In Canada
With a home equity loan you can usually borrow up to 80% of your home’s appraised value, minus the balance of your mortgage.
To illustrate how much you can borrow on a home equity loan, let’s say your home is currently worth $500,000 and you still owe $300,000 on your mortgage. If your lender allows you to borrow 80% of the equity in your home, the equation to determine the most you can borrow is as follows:
| Home Value | $500,000 |
| Maximum Amount You Can Borrow (80%) | $400,000 ($500,000 x 80%) |
| Outstanding Mortgage | $300,000 |
| Total Amount You Can Borrow | $100,000 ($400,000 – $300,000) |
When Can You Tap Into Your Home Equity?
You cannot borrow against every dollar of equity you have. In Canada, lenders let you access your home equity once you have built up enough of it, and there are a few conditions you generally need to meet:
- At least 20% equity. Your mortgage plus any new borrowing usually cannot exceed 80% of your home’s value, so you need at least 20% equity to work with.
- A recent appraisal. Your lender will confirm your home’s current market value.
- Enough income. You need to show you can cover the new payments on top of your existing debts and pass the mortgage stress test.
- Decent credit. Banks want a solid credit score, though alternative lenders are more flexible.
When tapping into your home equity is a good choice depends on your interest rate, your reason for borrowing, and how long you plan to stay in the home.
How To Build Your Home Equity
The more equity you have, the more you can borrow, so it often pays to build it up first. There are a few ways to build home equity in Canada:
- Pay down your mortgage principal. Every regular payment chips away at what you owe and grows your equity.
- Make extra or lump-sum payments. Putting extra money toward the principal builds equity faster.
- Let your home value rise. As property values climb, your equity grows even if your mortgage balance stays the same.
- Renovate strategically. Improvements that add market value, like a kitchen or bathroom update, can boost your equity, though not every renovation pays off.
What’s A Good Reason To Use Your Home Equity?
Because your home is on the line, your equity is best used for things that improve your financial position, not for everyday spending or purchases that lose value. Good reasons to tap your equity include home renovations that increase your property value, consolidating higher-interest debt into one lower-rate payment, covering a major planned expense like education, or funding a down payment on another property. Using your equity for luxuries, vacations, or depreciating purchases like a car is riskier, since you are securing short-term spending against your home.
Advantages Of Using Your Home Equity
- Strengthen your home’s value. Since your home is an asset, you can use your equity to finance renovations, increasing your home’s market value if and when you decide to sell.
- Can be more affordable. Using your equity provides added security for the lender, so this financing can be cheaper than personal loans or unsecured lines of credit.
- Use the money for anything. Renovations, education, another property, a vacation, or consolidating higher-interest debts, the choice is yours.
Disadvantages Of Using Your Home Equity
- Various fees to cover. You may have to pay for the appraisal, the application, and legal documents before you can access the funds.
- Variable rates mean variable costs. A variable rate might start cheaper than a fixed rate, but your interest rate (and payment) can rise over time.
- Putting your house at risk. Defaulting on your payments can lead to foreclosure, so be certain you can keep up before borrowing.
Is Using Home Equity To Pay Off Credit Card Debt A Good Idea?
It can be, but it comes with a trade-off. Rolling high-interest credit card balances into a home equity loan or debt consolidation loan can slash your interest rate and leave you with a single, more manageable payment. The catch is that you are turning unsecured debt into debt secured by your home, so if you fall behind, you could put your house at risk. It only works if you also address the spending that created the debt in the first place. Whether you should use home equity to pay off your credit card debt really comes down to your discipline and your budget.
Using Home Equity To Buy Another House
Using home equity to buy another home in Canada is a common strategy for purchasing a vacation property or an investment. Pulling equity out of your current home gives you a lump sum for the down payment, which can make you a stronger buyer and even lower the rate on the new property. Just remember that you are borrowing against your primary home to buy the second one, so both properties, and your monthly budget, are on the line.
How Will You Use Your Home Equity Loan In Canada?
In the end, the way you decide to access and use your home equity is up to you. Whatever path you choose should be based on your financial situation, so don’t make that choice until you’ve got all the advice you can and weigh all your options equally. If you’re having trouble figuring out which solution will suit your needs best, speaking with a mortgage expert like Alpine Credits is a good first step.
Home Equity FAQs
Refinancing your mortgage means you’ll be replacing your current mortgage with a new loan that has updated terms and conditions. You can refinance with your current lender or a new lender. Many homeowners refinance to convert their home equity into cash.
A home equity loan is worth it if you need a large sum of money and can’t get approved for a large enough loan amount with other financing options, like personal loans. Since a home equity loan is secured by your house, you may have an easier time getting approved for a large loan amount at a competitive interest rate.
As mentioned, your house collateralizes your home equity loan. This reduces the lender’s risk and therefore helps increase your chances of loan approval at an affordable rate. But because your house secures the loan, you risk losing your home if you default. As such, make sure that you’re financially comfortable with making these extra loan payments before applying.
In Canada, you can generally borrow up to 80% of your home’s appraised value minus your outstanding mortgage on a home equity loan. On a HELOC, the line of credit itself is capped at 65% of your home’s value, though your combined mortgage and HELOC still cannot exceed 80%.
Yes. Consolidating high-interest credit card debt with a home equity loan can lower your rate and simplify your payments. Just keep in mind that you are converting unsecured debt into debt secured by your home, so your house is at risk if you cannot keep up with payments.
References
- Financial Consumer Agency of Canada. (2026). Home equity lines of credit. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html
- Canada Mortgage and Housing Corporation. (2026). Borrowing against your home equity. https://www.cmhc-schl.gc.ca/
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
