Robert McLister: For well-qualified borrowers with equity and self-control, HELOCs are a powerful source of flexibility
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John Allen Paulos had it right. In life, uncertainty is the only certainty.
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And sometimes the best antidote to all that uncertainty is home equity you can rely on.
Equity, paired with responsible credit management, unlocks funds that can save your financial skin — if your financing is properly structured in advance.
The most common and flexible tool for the job is a home equity line of credit, or HELOC. To get one, you generally need solid credit, sufficient income and a marketable property with at least 20 per cent equity.
Of course, not everyone is sold on the idea that HELOCs are a good move. Depending on the survey, only about one in three Canadian homeowners has one.
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Many people don’t even think about them or shy away if they have other assets to draw upon. That’s despite the fact that liquidating assets, including pulling money out of RRSPs or investments, isn’t always wise.
A low-cost HELOC, which can be paid back anytime without penalty, is often the smarter play. That strategy holds especially well for short-term bridging until better financing is available, or for long-term, tax-deductible borrowing to fund income-producing investments.
As for why you might need a HELOC in 2026, this year will be a cauldron of unpredictability. Let’s begin with the pleasant reasons, such as being able to act when opportunities appear.
For instance, HELOCs can be useful when…
Real estate values could easily slide in several pockets across the country. That or some other catalysts may create an opportunity that is too good to pass up.
For example, it’s not unthinkable that Toronto condos dive another 10 to 20 per cent (not a prediction), despite long-term net migration into the region and a future shortage of supply due to current underbuilding.
Or maybe an estate unloads a family cottage at a bargain and you need to act fast with an offer.
It’s equally plausible that the U.S., China or Russia do something reckless that batters markets. Personally, I wouldn’t want anything to do with stocks in the case of a Taiwanese invasion or AI bust, unless they were heavily oversold, but if we’re talking 30 to 40-plus per cent off, that’s compelling, despite the potentially long road back for the markets.
Or maybe another pandemic, geopolitical shock, tariff war or assorted chaos spikes inflation and levels stocks.
For a borrower properly suited to leveraged investing (i.e., one with a decade-long time horizon, other liquid assets, risk tolerance, etc.), buying broad, diversified stock indices down 25 per cent or more using tax-deductible debt can be a legitimate way to build net worth.
Perhaps you:
Those are some positive reasons. Now let’s turn to the darker chapters, where a HELOC stops being clever and starts being a lifesaver.
Artificial intelligence will eventually eliminate millions of salaried jobs in this country, partly offset by the creation of new ones. And even if you’re out of work for only six months, the safety net of a HELOC can preserve your sanity and lower your blood pressure.
Income can disappear just as easily when competitors eat your lunch, companies downsize or move out of Canada, government spending gets trimmed or some other unglamorous reality intervenes.
A natural or one-off disaster can wipe out a home or an income property without warning. If you act fast, HELOCs can be an immediate source of liquidity to help get you back on your feet.
Just remember that HELOCs are demand loans. If your house burns down, for example, expect your HELOC access to be frozen once the lender finds out, and you’ll still owe on any balance.
Lenders can even demand repayment in that situation, but if you’ve paid as agreed, you carry valid insurance naming the lender as loss payee and the proceeds are enough to cover the debt, they won’t necessarily pull that lever.
For folks who are not in default, lenders typically try to protect their recovery chances and avoid the reputational and borrower-insolvency risks of forcing immediate repayment after disasters.
The list of ways things can go sideways is effectively endless, but includes:
The point is, HELOCs can be invaluable tools that get you through trouble or build net worth.
Of course, they can also get people into trouble if they spend frivolously. Easy access has a way of encouraging some to borrow more than they should.
In those cases, missing even a payment or two can result in a frozen HELOC, particularly if the lender sees credit quality slipping or home values declining, which they often monitor continuously.
This is when HELOCs fail as safety nets. In fact, some borrowers, anticipating a freeze, have been known to pull funds in advance and park the cash in a high-yield account at another institution.
Fortunately, high-risk borrowers are the minority of cases, since qualifying for low-cost HELOCs isn’t easy. Because the credit revolves, lenders tend to be pickier, favouring borrowers with long histories of behaving responsibly with money.
In most cases, that means a credit score in the 700s, debt levels that make sense relative to income and enough provable earnings to pass inspection.
Quick tip: Banks also offer programs for borrowers with less provable income, assuming they bring plenty of other assets to the table.
It’s also worth noting that mortgage brokers can access alternative lenders with looser HELOC rules, though the price tag rises accordingly. Instead of rates as low as prime to prime plus 0.50 per cent (4.45 per cent) for a standard HELOC, alternative HELOCs carry rates of prime plus three per cent and up, plus higher setup fees.
In very limited situations, higher-cost HELOCs can still make sense for emergencies or consolidation, but only with solid, personalized advice. What you don’t want is to be pulled into a debt spiral, courtesy of an alternative lender’s costly interest charges.
Last but not least, HELOCs carry risk because their rates are variable. If you have $200,000 in HELOC debt and rates rocket from 4.95 per cent today to 7.70 per cent, as they did in 2023, your interest-only payment leaps from $825 to $1,283 per month.
Of course, in an emergency, you can borrow off the HELOC to make payments, but rely on that regularly and you’re solving a leak by drilling new holes.
The upside is that HELOCs are open, meaning you can lock into a fixed rate at any time with your current lender or another one — assuming you qualify. Just note that switching lenders can involve slightly higher closing costs than a standard mortgage, though nothing remotely ruinous.
However you look at it, for well-qualified borrowers with equity and self-control, HELOCs remain a powerful source of flexibility. Most homeowners should at least consider having one in place, as they often cost nothing if not used.
And if you suspect your property value could slip — and your equity sits between 20 and 30 per cent — it may be wise to act sooner rather than later.
The ideal moment to set up a HELOC is when approval is easiest and urgency is nowhere in sight.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
This table reflects the prevailing rates at the time this story was published. For the best mortgage rates in Canada right now, click here.
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