Updated: April 2025  |  bremo.io financial guides

Home Equity Loans for Renovations in Canada

If you have equity in your home and need a set amount to fund a specific renovation, a home equity loan can be an excellent option. You get the full amount upfront, repay it at a fixed rate, and know exactly what your payment will be every month. Here's how home equity loans work in Canada and when they make sense for renovation financing.

What Is a Home Equity Loan?

A home equity loan — sometimes called a second mortgage — lets you borrow against the equity in your home in a single lump sum. Unlike a HELOC (which is revolving), a home equity loan is a term loan: you receive the money once, then repay it over a fixed period at a fixed interest rate.

Because the loan is secured by your home, interest rates are significantly lower than unsecured personal loans. Rates for home equity loans in Canada typically range from 5% to 10% depending on your lender, equity, and credit profile — compared to 8%–18% for unsecured loans.

How Much Can You Borrow?

The maximum combined loan-to-value (LTV) for a home equity loan in Canada is generally 80% of your home's appraised value. This means your first mortgage plus the home equity loan can't exceed 80% of what your home is worth.

Some private lenders will go higher (up to 85% or 90%), but at significantly higher rates. Stick with A-lenders (big banks, credit unions) if your equity and credit qualify.

Home Equity Loan vs. HELOC: Which Is Better for Renovations?

Choose a Home Equity Loan If:

• You have a single, well-defined project with a known cost
• You want a fixed interest rate and predictable payments
• You're concerned about rising rates (fixed rate protects you)
• You prefer the discipline of a scheduled repayment rather than an open line of credit

Choose a HELOC If:

• Your renovation will happen in phases with costs spread over time
• You want to minimize interest by drawing only what you need
• You expect to repay quickly and want to re-use the credit line
• You're comfortable with variable-rate exposure

Interest Rates: Fixed vs. Variable

Home equity loans in Canada are typically offered at fixed rates, which is their main advantage over HELOCs. When you sign up, you lock in the rate for the full term (usually 1–5 years). This protects you from rate increases, which has been a major concern given the rate hikes of 2022–2023.

Some lenders offer variable-rate home equity loans, but the fixed option is usually more common and provides more certainty for budgeting renovation repayments.

Typical Loan Terms and Payments

Most home equity loans in Canada have terms of 1 to 5 years with amortizations up to 25 years. A shorter term means lower total interest but higher monthly payments. A longer amortization spreads payments out but means you pay more interest over time.

For a $50,000 home equity loan at 7% over 5 years (60 months), your monthly payment would be approximately $990. At 10 years, it drops to about $580/month but you pay significantly more total interest.

How to Apply for a Home Equity Loan

1. Check your equity. Estimate your home's current value (use recent comparable sales) minus your mortgage balance.
2. Get pre-qualified. Approach your current mortgage lender first — they already have your file and may offer the best terms.
3. Shop around. Credit unions, trust companies, and online lenders like nesto or Butler Mortgage can offer competitive second mortgage rates.
4. Order an appraisal. Most lenders require a formal appraisal ($300–$500) to confirm your home's value.
5. Legal closing. A lawyer or notary registers the new charge against your title. Budget $700–$1,500 in legal fees.

Costs and Fees

Beyond the interest rate, factor in:

• Appraisal fee: $300–$500
• Legal/notary fees: $700–$1,500
• Lender fees (some): $200–$500
• Title insurance (if required): $200–$400

Total setup costs of $1,200–$2,500 are typical. For a $50,000 renovation loan, these fees represent 2.4%–5% of the loan — worth it for the lower rate, but factor them into your comparison with alternatives.

Private Lenders for Home Equity Loans

If you have damaged credit or a high debt load that prevents approval at an A-lender, private lenders (B-lenders and MICs) can provide home equity loans — but at rates of 8%–15% or more. Use private lenders as a short-term bridge only, with a plan to refinance to a conventional lender once your credit improves.

Is a Home Equity Loan Right for Your Renovation?

A home equity loan is an excellent choice when you have a clear project scope, a known cost, and want the certainty of fixed payments. For a $30,000 bathroom and kitchen update, for example, a home equity loan at a fixed rate gives you the full amount at once, with predictable repayment. If your renovation is ongoing or evolving, consider a HELOC for more flexibility.