Using a HELOC to Pay Off Debt in Canada 2025

A Home Equity Line of Credit (HELOC) lets Canadian homeowners borrow against the equity in their property at relatively low interest rates. Using a HELOC to pay off high-interest credit card debt or personal loans can generate dramatic interest savings — but it converts unsecured debt into debt secured by your home, which carries meaningful risk.

This guide covers how HELOCs work in Canada, the math behind using one to pay off debt, the risks involved, and how to decide if it's right for your situation.

How a HELOC Works in Canada

A HELOC is a revolving line of credit secured by your home. Key mechanics:

• Maximum borrowing: Up to 65% of your home's appraised value (standalone HELOC limit), or up to 80% when combined with your mortgage
• Interest rate: Variable, typically prime + 0.5% to prime + 2%. With the Bank of Canada prime rate in 2025, this means approximately 5%–7%
• Minimum payments: Interest only (though paying more is strongly recommended)
• No fixed repayment schedule: Unlike a loan, a HELOC doesn't amortize — you can borrow, repay, and borrow again
• Qualifying: You need sufficient home equity and a credit score typically above 620; lenders also stress-test your income

The Interest Savings: How Big Are They?

Moving $20,000 from a 19.99% credit card to a 6% HELOC saves approximately $2,800 per year in interest charges — assuming you make the same total payments. Over 3 years, that's over $8,000 in savings on that single debt transfer.

The savings are even larger for multiple debts: if you consolidate $40,000 in high-interest debt, the annual interest savings can exceed $5,000.

The Critical Risk: Secured vs. Unsecured Debt

Credit card debt is unsecured. If you can't pay, the consequences are credit damage and potential collections — but you cannot lose your home over a credit card debt through a normal creditor (though a court-ordered judgment can eventually lead to complex enforcement steps). A HELOC is secured by your home. If you can't make HELOC payments, the lender can foreclose.

Who Should Consider a HELOC for Debt Payoff?

This strategy makes sense when:

• You have significant equity in your home (20%+ after the HELOC)
• Your income is stable and you can afford HELOC payments
• You have strong self-discipline to not re-accumulate credit card debt
• Your total high-interest debt is large enough that savings are meaningful ($100+)
• You have a clear payoff plan for the HELOC itself

Who Should NOT Use a HELOC for Debt Payoff?

• Anyone whose income is unstable or at risk
• Anyone who hasn't addressed the spending habits that created the debt
• Anyone with less than 20% equity after the HELOC draw
• Anyone whose debt situation is severe enough that a consumer proposal might be more appropriate

HELOC vs. Debt Consolidation Loan

A debt consolidation loan (personal loan) typically runs 10%–18% for qualified borrowers. A HELOC runs 5%–7%. Both beat credit cards, but the HELOC is cheaper. The tradeoff: a personal loan is unsecured (no home risk), has a fixed repayment schedule, and can discipline you to pay down the balance by a set date. A HELOC's open-ended nature can lead to complacency.

Steps to Use a HELOC for Debt Consolidation

1. Get your home appraised or use your bank's online valuation tool to estimate available equity
2. Apply for a HELOC through your bank or mortgage broker — shop around for best rate
3. Once approved, draw only the amount needed to pay off your high-interest debts
4. Pay off all credit cards and loans immediately upon receiving HELOC funds
5. Create a repayment plan for the HELOC itself — set a target payoff date
6. Do not re-use the credit cards for new purchases you can't pay in full monthly