What's a HELOC, and what is a home equity loan?
A home equity line of credit — usually shortened to HELOC — is a revolving, secured borrowing limit registered against your property. You are approved for a maximum amount, and you decide how much of that limit to use and when. Interest is charged on the balance you have actually drawn, and as you repay, the available limit opens up again. Most HELOC loans in Canada are priced off a variable benchmark, so the interest you pay can move when that benchmark moves.
A home equity loan is a fixed secured instalment loan. The lender advances one lump sum, and you repay it over a defined term through scheduled payments, typically at a fixed interest rate. There is no revolving limit to reuse: once the loan is repaid, the arrangement ends unless you arrange new financing. Because the schedule is set at the start, you know what is due each period.
Both are secured by the same asset — your home — which is why lenders generally treat them as lower risk than unsecured borrowing, and why the pricing and approval standards differ from credit cards or unsecured lines of credit. It is also why the consequence of default is more serious: the lender can look to the property.
Terminology matters when you shop. What is home equity line of credit in one lender's paperwork may be described somewhere else as a secured line, a readvanceable facility, or a home equity plan. Read the disclosure documents rather than the marketing name.
HELOC vs home equity loan: side-by-side comparison
| Feature | Home equity line of credit (HELOC) | Home equity loan (fixed instalment) |
|---|---|---|
| How money is advanced | You draw from an approved limit as needed | One lump sum at the start |
| Structure | Revolving: repay and re-borrow | Closed-end: no re-borrowing |
| Interest rate | Usually variable, tied to a benchmark | Usually fixed for the term |
| Payment amount | Often a minimum payment based on interest, sometimes with a small principal component | Set at the start, blending principal and interest |
| Payment certainty | Lower: payments can move when rates move | Higher: the schedule is fixed for the term |
| Repayment discipline | Depends on you deciding how fast to repay | Principal reduces on a schedule |
| Tends to fit | Ongoing or uncertain needs, staged projects, a reserve you may not use | A single, defined cost you want retired by a known date |
| Collateral and registration | Often registered as a collateral charge | Secured by the property; may be a standard or collateral charge |
How the choice changes payment certainty
Payment certainty is the clearest dividing line. With a fixed instalment home equity loan, the payment is agreed at the start and does not change when market rates move. Your budget line is predictable, which makes it easier to plan around other obligations.
A HELOC loan behaves the opposite way. If the benchmark it is priced from rises, the interest on your outstanding balance rises, and your minimum payment with it. If the benchmark falls, the same mechanism works in your favour. Many HELOC agreements require only a minimum payment that covers interest, sometimes with a small principal component, which keeps the payment low but leaves the balance largely intact.
There is a second, quieter variable: your own behaviour. A revolving limit stays open, and the minimum payment does not force repayment. Certainty of payment and certainty of payoff are different things, and only one of them is fixed by a loan contract.
How the choice changes total cost
Total cost is driven by three inputs: the rate you are charged, how long the balance stays outstanding, and any fees attached to setting up, carrying or discharging the arrangement.
- Rate. Fixed and variable pricing reflect different risks. A fixed instalment loan locks in certainty; a variable limit moves with the market. Neither structure is automatically cheaper over time, and the gap between them widens or narrows as the benchmark changes.
- Time. This is where structure matters most. A loan with scheduled principal repayment retires itself on a known timeline. A revolving limit with interest-focused minimum payments can carry a balance for years unless you deliberately overpay.
- Fees. Setup, appraisal, registration, discharge and early repayment charges vary by lender and province. Ask for them in writing before you commit, and ask specifically how any early repayment charge is calculated, because the formula is not always simple.
Two borrowers with the same limit and the same rate can pay very different totals purely because of how quickly they chose to reduce principal. That is the part of the comparison that a headline rate does not capture.
Rates, benchmarks and what they do not tell you
HELOC pricing is often described relative to prime, while a fixed instalment loan is quoted as a contract rate for a term. The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. These are benchmarks, not offers, and no lender is obliged to lend at them.
Two details are worth knowing. Canadian fixed-rate mortgages are compounded semi-annually by law, which affects how a quoted rate translates into an effective cost. And at federally regulated mortgage lenders, the qualification test for an uninsured mortgage uses the greater of the contract rate plus 2 percentage points and 5.25%, as set out in OSFI Guideline B-20 — so the rate you are offered and the rate you are tested at are not the same number.
What lenders look at when you apply
At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, and total secured lending against the home is usually capped at 80%, according to OSFI Guideline B-20. Those are structural limits, not offers. The same lenders generally work to a total debt service ratio ceiling of about 44%, and they qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%.
Beyond ratios, lenders look at income documentation, employment stability, credit history as reported by Equifax Canada and TransUnion Canada, property type, and the appraised value of the home. Where the property sits and how it is titled matters too. The lowest rates are only available to the most qualified applicants.
Regulation is layered. Lending in Canada is licensed provincially, so the regulator and the rules differ depending on where you live and who is lending. Federally regulated financial institutions' consumer complaints go to the Financial Consumer Agency of Canada, while provinces license and supervise most other lenders.
When each structure tends to fit
- A HELOC may suit you if your need is ongoing or uncertain — staged renovations, a multi-year project, or a reserve you want available but may not use. You want the flexibility to draw, repay and draw again, and you are comfortable managing repayment yourself.
- A home equity loan may suit you if you have a single, defined cost and want it gone by a known date. You would rather have a fixed payment than a moving one, and you do not need to borrow again from the same arrangement.
- A combination may suit you if you want a fixed instalment portion for the amount you are certain about, plus a smaller revolving limit for everything else. Some lenders structure it this way, and combined borrowing still has to fit the lender's equity and debt-service limits.
Before you sign: practical checks
- Confirm whether the charge is standard or collateral, and what that means if you later want to switch lenders.
- Ask how the interest rate is set, which benchmark it follows, and how often it can change.
- Ask what the minimum payment is and whether any part of it reduces principal.
- Ask about setup, appraisal, registration, discharge and early repayment charges.
- Ask whether the lender can reduce or freeze the limit, and under what conditions.
- Ask how the debt will be handled if you sell or refinance the property.
- Read the disclosure documents. The Financial Consumer Agency of Canada's mortgage resources describe what lenders must tell you and what to verify.
Where loanmoose.ca fits
loanmoose.ca is not a lender. It does not make loans, set rates, or make credit decisions. It is a Canadian loan matching and comparison service that helps you see what kinds of secured and unsecured borrowing exist and connect with providers who may be able to help. Any approval, rate, limit or term comes from the lender, not from us.
Because Canada's lending rules are provincial as well as federal, the right structure depends on your province, your property, your income and your goals. For significant decisions, it is worth getting regulated professional advice — a mortgage professional, an accountant or a lawyer — rather than relying on a general guide.
If you want to understand your rights before you shop, the Financial Consumer Agency of Canada publishes plain-language material on credit, mortgages and complaints.