How home equity is measured
Home equity is a subtraction. Take the appraised value of your property and subtract every balance registered against title: the first mortgage, any second charge, and any secured line of credit you already carry. What remains is the portion of the home you effectively own.
Two forces move that number. The first is debt reduction, because every mortgage payment lowers the balance and builds equity even when prices are flat. The second is property value, which the market sets and an appraisal confirms. A rising market adds equity. A falling market removes it, and it can remove it faster than you can pay down the mortgage.
Lenders do not use the price you paid, the price you hope for, or an online estimate. They use an appraisal, and they express the result as a loan-to-value ratio: the amount secured against the property divided by the appraised value. If more than one charge sits on title, the lender adds them together to get a combined loan-to-value ratio. That ratio, rather than your equity expressed in dollars, is what decides how much room is left to borrow.
The loan-to-value limits federally regulated lenders work to
At federally regulated lenders, a line of home equity is generally limited to 65% of appraised property value, and total secured lending against the same property is usually capped at 80%. Those are ceilings, not entitlements. A lender can advance less than the ceiling, and often does when other parts of the file are weak.
Underwriting is a separate test from the loan-to-value limit. According to the OSFI Guideline B-20, federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, measuring housing costs plus all other debt payments against gross income. The same guideline has lenders qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%, so you are tested at a higher rate than the one you sign up for.
You will also see figures published by the Bank of Canada, including 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 consequences follow. The amount you can borrow against your equity is often smaller than your equity suggests, because both the loan-to-value cap and the debt service test apply. And if you already carry significant unsecured debt, adding a secured payment can push your total debt service ratio past the ceiling even when the loan-to-value math looks comfortable.
Ways to borrow against your equity, compared
The labels overlap in everyday use, but the products behave differently. A home equity loan is generally a closed, amortizing advance. A line of home equity is a revolving limit that you draw on and repay. Both are secured by the property, and both sit inside the same loan-to-value framework.
| Option | How it works | Payment structure | Suited to | Main risk |
|---|---|---|---|---|
| Home equity loan | A set amount advanced once and secured by a charge on the property | Fixed rate with a set payment schedule over the term | A one-time cost you can plan for and want paid off by a date | The payment does not fall if your income does |
| Line of home equity | A revolving limit you draw on as needed, up to the lender's cap | Interest accrues on the balance you use, so the payment can move | Staged or irregular costs, with a repayment plan | A revolving balance can sit unpaid for years |
| Refinancing your mortgage | Replacing the current mortgage with a larger one and taking the difference in cash | Set by the new mortgage, with a new term and amortization | Borrowing a larger amount while keeping one payment | Stretching the amortization increases total interest paid |
| Second mortgage or charge | A separate loan registered behind the first mortgage, often from a provincially licensed lender | Set by that lender, and terms vary widely | Situations the first lender will not approve | Higher cost, and the charge must be cleared when you sell |
Whichever route you look at, a lender weighs the same core items:
- The appraised value of the property, its type and its location.
- Combined loan-to-value, meaning how much is already registered on title.
- Your total debt service ratio against gross income, including property taxes, heating and other debt payments.
- Your credit history as reported by Equifax Canada and TransUnion Canada.
- Proof of income and how stable that income is.
- What the money is for, and whether it improves the property or goes somewhere else.
Structure matters more than the name on the product. A home equity loan is amortizing, so the balance falls on a schedule. A line of home equity is open, so the balance only falls if you choose to pay it down. The lowest rates are only available to the most qualified applicants.
What is at risk when the loan is secured by your home
Secured borrowing changes the consequences of a missed payment. An unsecured balance can damage your credit and be sent to collections, but it does not put your home on the line. A loan or a line secured by your property does. If payments stop, the lender can enforce on the security, and the practical result can be the sale of the home.
Equity can also disappear. If property values fall, you can end up owing more than the home is worth, which narrows your options at exactly the moment you need them. Rolling unsecured debts into a secured product reduces the interest you pay on that money today, but it converts unsecured debt into debt backed by your home. That is a change in risk even when the monthly payment looks smaller.
Before you sign, read the terms for how the credit can change:
- Whether the lender can reduce, freeze or demand repayment of a revolving limit.
- What happens at renewal, and whether the term or amortization resets.
- What costs apply if you pay the balance off early or sell the property.
- Whether the charge on title must be discharged at your expense when you are done.
Missed payments are reported to the two national credit reporting bureaus, Equifax Canada and TransUnion Canada. A consumer proposal stays on a credit report for 3 years after completion, or 6 years from filing, whichever comes first. A first bankruptcy stays on a credit report for 6 years after discharge. Only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy, so if you are already struggling with payments, that is the professional who can explain what those routes involve.
Who regulates the lender, and where complaints go
Lending in Canada is licensed provincially, so the regulator and the rules differ depending on who you are dealing with. Federally regulated financial institutions' consumer complaints go to the Financial Consumer Agency of Canada; provinces license and supervise most other lenders. That difference affects both the conduct rules a lender follows and the route you take if something goes wrong.
loanmoose.ca is not a lender. It does not make loans, set rates, or make credit decisions. It is a matching and comparison service, which means any offer you see comes from a lender with its own criteria, and those criteria decide the outcome.
This guide is general information, not financial, legal or tax advice. The right answer for your situation depends on your income, your debts, your property and your plans, and for a decision of this size a regulated professional is the right person to ask.