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Home Equity Loans In Canada

Author: Caitlin Wood

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Caitlin Wood

Editor-in-Chief at Loans Canada

Caitlin Wood has more than a decade of experience helping Canadian consumers learn how to take control of their finances. Expertise:

• Personal finance
• Consumer borrowing
• Credit improvement
• Debt management

Reviewed By: Priyanka Correia

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Priyanka Correia

Associate Editor at Loans Canada

As a senior member of the Loans Canada team, Priyanka Correia is committed to empowering Canadians with the knowledge they need to make smart financial choices. Expertise:

• Personal finance
• Consumer borrowing
• Consumer banking
• Debt management

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Updated On: August 4, 2026

If you are a homeowner, you may have accumulated some equity over time. If so, you might be able to use this equity to fund a large expense. For instance, a home renovation, college tuition, or an expensive purchase like a boat might require a hefty sum of cash. In these cases, you can cover the cost using your equity accessed through a home equity loan.

Let’s take a closer look at how you can use your home equity to get your hands on some extra cash.

What Are Home Equity Loans?

There are two main ways you can tap into your home equity: through a home equity loan or a home equity line of credit (HELOC). Both let you borrow against the value you have built up in your home, but they work differently.

Home Equity Loan

A home equity loan works a lot like a secured personal loan. This loan is secured against the equity in your home and is often referred to as a second mortgage. Payments are fixed and terms range between 5 to 30 years. They generally have lower rates than most credit products but are usually higher than the original mortgage rate.

Like a regular installment loan, you will be funded in a lump-sum amount of cash that you can use according to your needs. You will make fixed payments with interest over a period of time, usually between 5 to 30 years. Interest rates on home equity loans are typically higher than a regular mortgage but lower than a regular personal loan. Moreover, rates are typically fixed, so payments are consistent and easy to budget. Do note that if you fail to make your payments, your lender can seize your property to recoup payment.

HELOC

A HELOC, or home equity line of credit, is a type of financial program that allows you to borrow the equity in your home to access cash when you need it. When you take out a HELOC in addition to a separate first mortgage, you consider the HELOC a second mortgage.

There are two main types of HELOCs: those that are tied to your mortgage, and those that are not.

• HELOCs tied to your mortgage. A HELOC that is bound to your home loan requires that you hold both your HELOC and mortgage with the same lender. Since the HELOC is affiliated with your current mortgage, you can borrow up to 80% of your home’s value.
• Independent HELOCs. These standalone HELOCs are not linked to your mortgage and allow you to borrow up to 65% of your home’s value.

Unlike a traditional loan in which you receive a lump sum of money and repay it in fixed installments, a HELOC works more like a credit card. You can draw from the line of credit up to your maximum spending limit as often as you like. Then, you can repay as much or as little of the withdrawn amount monthly. Once you repay the money, you can borrow again and again on an as-needed basis. HELOCs typically come with variable interest rates, which means the rate on your HELOC will fluctuate with the prime rate.

Home Equity Loan vs. HELOC

Both a home equity loan and a HELOC allow you to access your home’s equity. However, how you access the equity and how you repay the borrowed funds differs. With a home equity loan, you borrow a lump sum and repay it in regular installments over a set term. With a HELOC, you borrow from a line of credit on an as-needed basis, similar to a credit card, and only pay interest on the withdrawn funds.

What Do You Need To Get A Home Equity Loan?

To apply for a HELOC or home equity loan, you will need to meet a few criteria including, but not limited to:

What Credit Score Do You Need?

Generally speaking, you need a credit score of anywhere from 620 to 680 to get a home equity loan. The exact score will depend on the lender, your income, employment, debt level, and equity in your home.

For instance, if you have a high income, lots of home equity, and low debt levels, your lender may allow a lower credit score. But if your finances are weak, you may need a higher credit score to offset the lender’s risk. You can find out what your credit score is for free by using Loans Canada’s CompareHub tool.

Do You Need To Pass The Mortgage Stress Test?

Passing the mortgage stress test is part of the qualification criteria to get approved for a HELOC or home equity loan with a federally regulated lender. This test requires you to show that you can handle higher mortgage payments based on increasing rates in the future. More specifically, you will need to prove that you could still afford your mortgage under the test rate of either 5.25% or the rate your lender offers plus 2%, whichever is higher.

Only federally regulated lenders must put borrowers through this stress test. Alternative lenders are not as strictly regulated and have the flexibility to forgo it. So, if you want to avoid the stress test, consider applying for a HELOC or home equity loan with an alternative lender.

How Much Home Equity Do You Need?

Your home equity refers to the value of your home minus the amount you still owe on your mortgage. When you purchase a house, you are considered the owner, but until your mortgage is paid off completely, your lender retains an interest in the house. That means you do not technically own the home in its entirety until you pay off your mortgage. Home equity increases in two ways: by making mortgage payments, and through appreciation in the value of your house over time.

To qualify for a home equity loan or HELOC, you generally need at least 20% equity in your home, since lenders cap your total borrowing at around 80% of your home’s value.

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service and education platform.

How To Calculate Your Home Equity

Home equity is calculated using the market value of your house minus the balance of your mortgage. So, the formula would be as follows:

Property value minus outstanding loan balance = home equity

For instance, let’s say the current market value of your home is $650,000, and you still owe $200,000 on your mortgage. Using these figures, your home equity would be $450,000 ($650,000 minus $200,000).

To work out how much you can actually borrow, apply your lender’s limit and subtract your mortgage. If your home is worth $700,000 and your lender allows you to borrow up to 80%, that is $560,000 ($700,000 x 80%). Subtract your $400,000 mortgage, and you could borrow up to $160,000 ($560,000 minus $400,000). Keep in mind that to confirm the official amount of equity you have, you will need to have your house appraised.

Can You Get A Home Equity Loan With Bad Credit?

Yes. Because a home equity loan or HELOC is secured against your home, lenders focus heavily on your equity, not just your credit score. That makes these products more accessible than an unsecured loan if your credit is less than perfect.

A traditional bank will still want strong credit, often around 680 or higher. But if your score is lower, B-lenders and alternative or private lenders will still consider you, because your home equity carries most of the weight in their decision. Some private lenders will work with very low scores, focusing on how much equity you have rather than your credit history.

There are trade-offs. A bad credit home equity loan usually comes with a higher interest rate (for example, prime plus 4% or more, versus around prime plus 1% at a bank), and some lenders will cap your borrowing at 65% to 70% of your home’s value if your credit is weak. The more equity you have, the more comfortable a lender will feel lending to you.

One thing to watch for: no legitimate lender offers a guaranteed home equity loan for bad credit. Approval always depends on your equity, income, and the property, so treat any promise of guaranteed approval as a red flag.

Can You Get A Home Equity Loan If You Are Unemployed?

Possibly. Because approval leans so heavily on your equity, being between jobs does not automatically rule you out. Traditional banks will want to see steady employment income, but alternative and private lenders are often willing to offer home equity loans for the unemployed, as long as you have enough equity and some form of reliable income.

That income does not have to come from a job. Many lenders will consider a pension, government benefits, investment income, rental income, or self-employment earnings. The stronger your equity position and the more provable your income, the better your odds, though you can expect a higher rate to offset the lender’s added risk.

Where Can You Get A Home Equity Loan?

You can get a home equity loan or HELOC in Canada from a bank, a credit union, or a private lender. The right choice depends mostly on your credit and how much flexibility you need.

Banks

If you have strong credit and income, one of Canada’s big five banks will likely offer the lowest rates, usually through a home equity loan or a HELOC bundled with your mortgage.

Product names and terms change, so confirm the current details directly with the bank. Banks typically require strong credit (often 680 or higher) and will put you through the mortgage stress test.

Private Lenders

If you have bad credit, non-traditional income, or you want to skip the stress test, a private or alternative lender may be a better fit. These lenders focus on your home equity rather than your credit score, so they are more flexible, though they charge higher rates and fees to offset the added risk.

Find The Best Mortgage For Your Needs

	Amount	Rate	Availability	Products
Loans Canada	Varies	Varies	All of Canada	- First mortgage - Refinancing - Renewal - Lender switch - Home equity loans
Alpine Credits	$10,000+	Based on equity	All of Canada except Quebec	- Home equity loans
Mortgage Maestro	$10,000+	5.19%+	All of Canada except Quebec	- First mortgage - Refinancing - Renewal - Line of credit (HELOC) - Reverse mortgage
Neo Mortage™	Varies	5.54%+	All of Canada except Quebec	- First mortgage - Refinancing - Renewal
nesto	$100,000+	5.34%+	All of Canada	- First mortgage - Refinancing - Renewal
Homewise	Varies	Varies	BC, AB, MB ON	- First mortgage - Refinancing - Renewal - Lender switch

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.

Home Equity Loan Application Process

Applying for a home equity loan takes a bit longer than an unsecured loan, since the lender has to verify your home’s value and check the title. Here is what to expect.

Steps

From application to funding, you can expect anywhere from a couple of weeks to about a month, depending on how quickly the appraisal and legal steps are completed. Alternative and private lenders can sometimes move faster than a big bank, since they tend to have fewer requirements.

Documents

You will be required to provide specific information to your lender, including your personal details, proof of your ability to repay the loan, and information about your home. In most cases, that means:

• Government-issued photo ID
• Proof of income, such as pay stubs, a notice of assessment, or business records if you are self-employed
• Your most recent mortgage statement
• Property details and a recent appraisal or the lender’s estimate of value
• Proof of home insurance
• Details of your other debts and monthly obligations

Costs

Before you take out a HELOC or home equity loan, be aware of the costs associated with this financial program.

What Can You Use Your Home Equity Loan On?

One of the perks of a home equity loan is that you can use the money for almost anything. When it comes to borrowing against your home, it is always in your best interest to spend the money on something that will help you save or make more money in the future. Some of the best uses include:

• Home repairs and renovations. Several home improvement projects can update the look of your home, make it more functional, and add value. Some of the highest-ROI projects include kitchen or bathroom upgrades, a new roof or windows, new additions, adding a basement suite, or a complete remodel.
• Debt consolidation. If you are carrying a few high-interest credit products, it might make sense to take out a home equity loan at a lower rate and use it to pay off that debt. You save money on interest and are left with just one payment to manage.
• Long-term senior care. Home equity can help pay for long-term senior care for yourself or a family member, turning the value in your home into support when it is needed most.
• A down payment on another property. You can use the funds toward a down payment on another home. Keep in mind that the government does not let Canadians borrow their down payment from a federally regulated lender, so you would need to work with an alternative lender. You would then have two payments: one for your mortgage and one for your home equity loan.
• Other large expenses. From tuition to a major purchase, a home equity loan can cover almost any big cost, usually at a lower rate than an unsecured loan.

How Will A Home Equity Loan Affect My Credit Score?

Any time you apply for new credit, your credit score may be affected. That is because your lender will access your credit file to assess your creditworthiness, which is referred to as a “hard pull” or “hard inquiry.”

Taking out a new loan, like a home equity loan or HELOC, will also increase your debt load, which could hurt your credit score. However, if you make timely payments every billing period, it may help your credit score, since payment history holds significant weight. So, every on-time payment you make may help increase your score. But the opposite is also true: if you miss your payments, your credit score could tumble. That is why it is important to ensure that you can keep up with your loan payments before applying.

Is Home Equity Loan Interest Tax-Deductible In Canada?

This is a common point of confusion, especially since the rules are different in the United States. In Canada, the interest on a home equity loan or HELOC is only tax-deductible if you use the borrowed money to earn income, such as investing or buying a rental property. In that case, you may be able to deduct the interest against that income.

If you use the funds for personal reasons, like renovating your own home, consolidating personal debt, or taking a vacation, the interest is not tax-deductible. Because these rules can get complicated, it is a good idea to speak with a tax professional before you claim any interest.

Additional Reading

Home Equity Loans For The Unemployed

Canada Home Inspection Checklist

Do You Need Renovation Insurance When Renovating Your Home?

Final Thoughts

A home equity loan is a unique financial tool. You can use it to access cash whenever you need to cover a large expense. But like any other type of financial program, make sure you are financially capable of repaying what you owe to avoid any significant repercussions.

Home Equity FAQs

References

1. Financial Consumer Agency of Canada. (2026). Home equity lines of credit (HELOC). Government of Canada. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html
2. Financial Consumer Agency of Canada. (2026). Using the equity in your home. Government of Canada. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/using-home-equity.html

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service and education platform.