Canadian homeowners who have owned for several years — or bought in markets that appreciated significantly — may be sitting on substantial home equity. This equity can be a powerful tool for financing renovations at much lower rates than any unsecured product. In 2025, there are three primary ways to access home equity for renovations: a HELOC, a mortgage refinance, or a second mortgage (home equity loan).
How Much Equity Do You Have?
Home Equity Calculator
Three Ways to Access Home Equity for Renovations
1. Home Equity Line of Credit (HELOC)
A HELOC is a revolving credit line secured against your home, available up to 65% of appraised value minus your mortgage balance. It's the most flexible way to access equity for renovations:
- Draw funds as needed — perfect for phased projects
- Pay interest only on what you've drawn
- Variable rate at prime ± 00.5–1%
- No fixed repayment schedule on most products
- Approval takes 2–4 weeks (appraisal required)
Best for: Larger or multi-phase renovations where you need flexibility on draw timing.
2. Mortgage Refinance
Refinancing your mortgage to a higher balance extracts equity as a lump sum, repaid at your mortgage rate over the remaining amortization. This gives you the lowest possible interest rate — but comes with significant caveats:
- Breaking your mortgage early triggers prepayment penalties — often 3 months' interest or IRD, whichever is greater
- IRD penalties can reach $10,000–$30,000+ on fixed-rate mortgages
- Best timed at mortgage renewal to avoid penalties
- Available up to 800% LTV (combined mortgage + equity takeout)
- Must re-qualify under current stress test rules
Best for: Large renovations timed at mortgage renewal, where the lower rate over a long amortization justifies the product.
3. Second Mortgage (Home Equity Loan)
A second mortgage sits behind your first mortgage and provides a lump sum at a fixed rate. It's less common than HELOCs in Canada but useful when:
- Your first mortgage lender doesn't offer HELOCs
- You want a fixed rate rather than variable
- You need a specific lump sum rather than a revolving line
Second mortgage rates are higher than first mortgage rates (typically prime + 1–3%) because of the subordinate position. Private second mortgages for borrowers who don't qualify at banks can reach 8–12%.
Best for: Borrowers who can't break their first mortgage and want a fixed-payment structure.
Comparison: HELOC vs. Refinance vs. Second Mortgage
| Feature | HELOC | Refinance | Second Mortgage |
|---|---|---|---|
| Rate | Prime ± 00.5–1% | Mortgage rate (lowest) | Prime + 1–3% |
| Structure | Revolving | Term loan | Term loan |
| Prepayment penalty | No | Yes (if breaking early) | Sometimes |
| Appraisal needed | Yes | Yes | Yes |
| Max LTV | 65% | 800% | 800% combined |
| Approval time | 2–4 weeks | 4–8 weeks | 2–6 weeks |
| Best for | Flexibility, phases | Large renos at renewal | Fixed-rate lump sum |
Qualifying for an Equity-Based Renovation Product
All three products require:
- Sufficient equity: At minimum 200–35% equity depending on product
- Credit score: Generally 6500+ for institutional lenders; 6800+ for best rates
- Income verification: Stress test applies (qualifying at contract rate + 2% or 5.25%, whichever is higher) for refinances
- Property appraisal: Lender-ordered; costs $300–$600
- Debt service ratios: TDS generally must be below 44%
Strategy tip: If you're planning a large renovation within the next 1–2 years, open a HELOC now while your income and credit are strong — even before you need the funds. HELOCs cost nothing until you draw from them, and having the credit available protects you from being in a weak negotiating position when you're mid-renovation.
Save for Your Home Reno with Zero-Fee Banking
Set up a KOHO savings goal for your renovation fund and earn cash back on materials and appliances. No monthly fees means more money for your project. Use code BREMO2026 for a sign-up bonus.
Get KOHO Free — Use Code BREMO2026Frequently Asked Questions
How much equity do I need to access a HELOC in Canada?
You need enough equity so that your HELOC limit (65% of home value minus your mortgage) is positive — typically you need at least 35% equity in your home. On a $800,000 home, that means owing no more than $520,000 on your mortgage to access any HELOC.
Can I use equity for a renovation if I'm still on my original mortgage term?
Yes — through a HELOC (if your lender offers one alongside your mortgage) or through a second mortgage with a different lender. Refinancing to access equity mid-term triggers prepayment penalties, so that's usually only worth considering at renewal.
Does using equity for renovations affect my mortgage renewal?
Adding a HELOC doesn't directly affect your mortgage renewal. However, the HELOC balance is factored into your debt service ratios when you renew or refinance — if rates rise significantly and your HELOC is heavily drawn, this could tighten your options at renewal.