What is home equity?

Home equity grows when the mortgage balance falls, the property value rises, or both. A homeowner with a property valued at $650,000 and a $350,000 mortgage has $300,000 of gross equity. That does not mean the entire $300,000 can be borrowed.

Using a general maximum of 80% loan-to-value, total borrowing secured against a $650,000 property would be limited to approximately $520,000. After subtracting the $350,000 mortgage, the theoretical room is $170,000 before costs and lender-specific limits.

The lender’s accepted value, existing secured debts, product limits, closing costs and qualification may reduce the amount available. The companion guide, How Much Equity Can I Take Out of My Home?, provides a more detailed calculation.

Four common ways to access home equity

1. Mortgage refinance

A refinance replaces or increases the existing mortgage. The new mortgage pays out the old one, and approved additional proceeds may be advanced for the intended purpose. This can be appropriate when you need one lump sum, want an amortizing payment or also need to restructure existing debts.

The tradeoff is that refinancing during a closed term may trigger a prepayment penalty. Legal, appraisal, registration and discharge-related costs may apply. Increasing or restarting the amortization may lower the payment but can extend repayment and increase interest over time.

2. Home equity line of credit

A HELOC is revolving credit secured against the home. You can borrow, repay and borrow again up to the approved limit. You generally pay interest only on the amount used, which can make a HELOC useful when funds are needed in stages rather than all at once.

FCAC states that the HELOC portion itself may generally be up to 65% of the home’s value. When combined with a mortgage, total secured borrowing may generally reach 80%, subject to lender rules. HELOC rates are typically variable, so the required interest payment can rise. Interest-only payments also allow the balance to persist if there is no principal-repayment plan.

3. Second mortgage or home equity loan

A second mortgage is registered behind the first mortgage. It may allow the homeowner to access a lump sum without breaking a favourable first mortgage. Because the second lender takes additional risk, pricing and fees are generally higher than for a traditional first mortgage.

This option can make sense when the need is temporary, the first-mortgage penalty is high or there is a clear exit plan, such as refinancing at renewal. Compare the combined payments, total fees and expected cost until the second mortgage is repaid.

4. Readvanceable mortgage

A readvanceable mortgage combines an amortizing mortgage with a revolving secured credit component. As mortgage principal is repaid, available credit may increase, subject to the product terms and overall limit. It can provide ongoing access to equity but requires disciplined use because borrowing room can remain available for many years.

Comparing the main options

What can home equity be used for?

Subject to approval and lender conditions, equity proceeds may be used for purposes such as:

• consolidating credit cards, lines of credit or loans;
• renovations and major home repairs;
• education or other planned expenses;
• purchasing or investing in another property;
• business or investment purposes; or
• creating liquidity for a significant one-time need.

The purpose affects the risk analysis. Borrowing for a repair that protects the property is different from financing ongoing monthly spending. Investment and business uses introduce additional financial and tax considerations; obtain appropriate independent advice.

Having equity does not guarantee approval

The lender evaluates both the property and the borrower. Common factors include:

• Property value: an appraisal or lender-approved valuation may be required.
• Loan-to-value: all loans secured against the property count toward the applicable limit.
• Income: the lender verifies that income supports the proposed borrowing.
• Credit history: payment history, utilization and recent credit activity can affect the available options and pricing.
• Existing obligations: housing costs, loans, credit cards and other required payments are reviewed.
• Property acceptability: type, condition, location and marketability may influence approval.

Federally regulated lenders apply a minimum qualifying rate to many uninsured mortgage applications. OSFI currently describes the test as the greater of the contract rate plus 2% or a 5.25% floor. Other lender types and products may use different underwriting policies. Review the full guide to qualifying for a mortgage refinance in Ontario.

Costs to access home equity

Possible costs include a mortgage prepayment penalty, appraisal, legal work, title search, title insurance, registration, discharge and administration fees. A second-mortgage or alternative-lending transaction may also involve lender or brokerage fees. The actual amounts depend on the existing mortgage, chosen product and lender.

Ask which costs are paid from cash and which will be added to the new balance. Financing costs makes the transaction easier to complete upfront, but those costs may then accrue interest. Review mortgage refinance costs in Ontario before comparing options.

Important risks

• Your home secures the borrowing. Failure to repay can have serious consequences.
• Your equity decreases. Less equity remains for a future sale, renewal, emergency or other need.
• Rates can change. HELOCs are generally variable, and mortgage pricing may be different at renewal.
• Repayment can be extended. Adding short-term expenses to a long amortization may increase total interest.
• Revolving credit can persist. An interest-only minimum does not create a firm repayment date.
• Property values can fall. A decline can reduce the remaining equity cushion.
• Fees can outweigh the benefit. This is especially important when the amount needed is modest or the first-mortgage penalty is large.

If equity is being used for debt restructuring, read the risks of consolidating debt into a mortgage before proceeding.

The home-equity borrowing process

1. Define the amount and purpose. Separate the amount required from additional borrowing that is merely available.
2. Review the current mortgage. Obtain the balance, maturity date, payment, charge type and penalty estimate.
3. Estimate property value and equity. Use a reasonable value until the lender confirms an appraisal.
4. Compare structures. Review a refinance, HELOC and second mortgage when relevant.
5. Complete qualification. Provide income, mortgage, property and debt documents.
6. Review approval conditions and costs. Confirm the rate, payment, term, amortization, limits and payout instructions.
7. Complete the legal closing. Secured borrowing normally requires registration or changes to the property title charge.
8. Follow the repayment plan. Track how the funds are used and how the new balance will be reduced.

Which option may fit which need?

A refinance may fit a large one-time need when the mortgage can be restructured on acceptable terms. A HELOC may fit staged expenses when flexible access matters and the borrower has a firm repayment plan. A second mortgage may preserve a valuable first mortgage when the need is temporary and the exit is clear. Waiting until renewal may be preferable when the need is not urgent and breaking the mortgage would create a substantial penalty.

The best option is the one that meets the actual need with an affordable payment, acceptable total cost and manageable risk—not necessarily the option that provides the largest credit limit.

Frequently asked questions

Sources and current-information references

• Financial Consumer Agency of Canada: Borrowing against home equity
• Financial Consumer Agency of Canada: Home equity lines of credit
• Financial Consumer Agency of Canada: Breaking your mortgage contract
• Office of the Superintendent of Financial Institutions: Minimum qualifying rate

General information only: This page is educational and does not constitute financial, legal, tax or investment advice, a mortgage approval, or a commitment to lend. Mortgage and home-equity options, rates, qualification, limits and costs depend on the borrower, property, lender and timing. Information was reviewed on September 6, 2026; verify current requirements before making a decision.