A Home Equity Line of Credit or HELOC lets homeowners use the value of their property to access funds. This credit option works like a credit card, letting you borrow money, pay it back and borrow again as needed. The main contrast lies in the collateral-HELOCS use your house as security. This backing results in lower interest rates than loans without collateral. Current HELOC rates in Canada range from 6.45% to 7.95%, with TD Canada Trust offering some of the most competitive rates.
Getting a HELOC starts with evaluating your home’s value and figuring out how much equity you’ve built up. Lenders let you borrow up to 65% of your home’s value, subtracting what you still owe on your mortgage. This step helps figure out the amount you might access through a HELOC. Remember that not paying back the loan could mean losing your house since your home secures the loan.
Current HELOC Rates in Canada: Key Details You Should Have
Here are the current rates as of May 2025:
Major Banks
- TD Bank: 5.45% – 6.45%
- Scotiabank: 5.45%
- RBC (Royal Bank): 7.45%
- National Bank of Canada: 5.95% – 7.95%
Other Financial Institutions
- MCAP: 5.45%
- Motusbank: 5.45%
- Tangerine: 5.45%
- Desjardins: 5.95%
- Meridian Credit Union: 7.70%
The current prime rate at most Canadian lenders is 4.95%, and HELOC rates are typically offered as prime plus a premium (usually 0.5% to 3% above prime). The Bank of Canada recently paused its rate-cutting cycle on April 16, 2025, maintaining its benchmark Overnight Lending Rate at 2.75% due to inflation exceeding the 2% target.
Using a HELOC to Pay Off High-Interest Debt
A big benefit of using a HELOC is to pay off and combine high-interest debts.
- Credit cards, personal loans, and other unsecured debts often come with steep interest rates that add up fast. This makes it hard to lower the main balance.
- By applying for a HELOC, you might clear these debts at a much lower interest rate and save a significant amount over time.
- Similar to how mortgage refinance Canada options work, a HELOC can help homeowners leverage their home equity for financial flexibility.
To use a HELOC to pay down debt, having a solid plan is crucial. Start by writing down all your debts, their interest rates, and how much you still owe. Figure out which ones cost you the most in interest. Focusing on paying off those high-interest debts first can help you make the most of debt consolidation with a HELOC.
To use this strategy well, stick to it with focus. After using a HELOC to clear your high-interest debts, you need to stay away from adding more debt. Create a budget and handle your money to prevent ending up in the same bad spot later. A HELOC can help you gain financial freedom, but it needs thoughtful planning and smart control.
Why a HELOC Works for Consolidating Debt?
Using a HELOC to consolidate debt comes with several perks. One big plus is that HELOCS have much lower interest rates compared to personal loans or credit cards. This lets you pay more toward the principal amount, helping you get out of debt faster.
- A HELOC also gives you a lot of borrowing flexibility.
- Instead of taking a lump sum and sticking to a fixed payment plan like with instalment loans, you only borrow what you need as you need it.
- This helps handle surprise expenses or emergencies.
Using a HELOC to consolidate debt can make handling your finances simpler.
- Rather than juggling several payments that have different due dates and interest rates, you combine them into one monthly payment.
- This change can lower your stress and help you manage your money better.
- Having a clear and organised financial plan can bring a sense of relief that’s hard to measure.
Options if Your Credit is Poor: Can You Still Get Approved?
Getting a HELOC with bad credit can seem tough, but it isn’t out of reach. Lenders look at multiple things when reviewing a HELOC application, like credit history, how stable your income is and how much equity you have in your house. A poor credit score might make it harder, but it doesn’t mean you can’t qualify.
A useful approach to improve your chances is to connect with a mortgage broker in Ontario or your local area who focuses on helping people in similar situations. These experts know the process well and can help you find lenders that are open to giving HELOCS to people with credit challenges. They might also offer tips to raise your credit score over time, which could give you more borrowing options later.
If a HELOC isn’t available right away because of bad credit, there are other choices to think about.
- You could use a co-signer, look into different kinds of secured loans or work on raising your credit score before trying again.
- Each of these ideas takes some thought and planning, but they might help you find financial solutions that seemed impossible at first.
Wrapping up
To make smart choices with a HELOC, it’s important to understand how it fits into your debt plan. Using the equity in your home could help you cut down on high-interest debt, make managing your money easier, and build a path toward a steadier financial future. You need a clear plan and good financial habits to use a HELOC.
The benefits can be big, but tying debt to your home carries serious risks that you can’t ignore. Talking to experts can give you helpful advice that matches your financial needs, especially if you’re looking for a mortgage with bad credit in Canada.
