Home Equity: How and When To Tap Your Home’s Value

Aug 4, 2026

Find out if a HELOC, second mortgage or mortgage refinance is the best way to access your home equity.

Written by Kurt Woock

Lead Writer & Content Strategist

Written by Clay Jarvis

Lead Writer & Spokesperson

Written by Kurt Woock

Lead Writer & Content Strategist

+ 2 more

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TL;DR:

Home equity is how much home you own after accounting for your remaining mortgage amount.
Home equity is generally accessed through home equity lines of credit, second mortgages, mortgage refinances and reverse mortgages.
Home equity is best used to pay for items that increase in value rather than lifestyle-enhancers.

Home equity is a fairly simple concept: it’s how much of your house you’ve paid off, adjusted for its current value.

Using home equity as a financial tool? That’s a little more complicated. You have to choose the right method for tapping your equity, decide how much of it to pull out and when to do it.

What is home equity and how does it work?

The formula for calculating home equity is fairly straightforward:

Equity = Current Market Value - Remaining Mortgage Balance.

For example, if your home is appraised at $600,000 and your existing mortgage is $350,000, you have $250,000 in equity. If you sell that home for $600,000, the equity is the part you keep (minus closing costs, of course). You paid for it, so it’s yours.

Equity increases each time you make a mortgage payment. But because it’s based on your home’s current value and not what you paid for it, equity can fluctuate.

If your local real estate market is hot and home prices are surging, your equity will increase right along with them. But if the market dips and drags home prices down, your equity will take a hit.

How much of your equity can you borrow in Canada?

Most lenders in Canada provide products that allow you to borrow against the equity in your home. You can’t borrow all your equity, though. At most, you can access up to 80% of your home’s value, even if you own it free and clear.

If you own a $1 million home and have no mortgage, you could access up to $800,000 in equity ($1,000,000 x 0.8)
Using the $600,000 home example from above, where you have $250,000 in equity, the most you could pull out is $130,000 ($600,000 x 0.8 - $350,000).

But the amount you can access depends on the home equity product you choose.

Accessing home equity: HELOCs, refinancing and more

Home equity line of credit (HELOC)

HELOCs are one of the most commonly used equity takeout methods in Canada. You can usually apply for a HELOC when you get your mortgage, tap into it as needed and only pay back what you take out.

The key aspects of a HELOC include:

A strict borrowing limit. The most you can access is 65% of your home’s value.
Revolving debt, like a credit card. The amount you pay off gets added back to the amount you can borrow.
Interest-only repayment. Most HELOCs require you to make interest payments regularly. The principal can be paid down at your own pace.
Minimum equity requirements: 35% for a standalone HELOC, 20% if your HELOC is part of your mortgage.
The qualification process. If you apply for a HELOC separately, your finances will be evaluated as they would be for a mortgage.

While HELOCs can be useful, they’re also risky. Your property is your collateral. If you can’t maintain the interest payments, you could potentially lose your home.

Common HELOC fees

When getting a HELOC, you can expect to pay the following:

Legal fees for registering the collateral charge on your home.
Title search fees.
Application fees.
Home appraisal fees.
An origination fee.
Taxes.
A credit insurance fee.

Mortgage refinance

Another common way of accessing equity is to refinance your mortgage, in what’s specifically known as a “cash-out refinance.”

This kind of refinance replaces your current mortgage with a larger loan that includes the cost of your remaining mortgage and additional funds secured by your equity. You wind up with a larger monthly mortgage payment, but the interest rate is typically lower than what you’d pay on a HELOC or second mortgage.

Timing creates a major risk when refinancing. If you refinance during your mortgage term, you could get hammered with a staggering prepayment penalty. If you refinance when your term ends and you’re renewing your mortgage, you shouldn’t face any penalties.

Mortgage refinance fees

Legal fees.
Title search and title insurance fees.
Home appraisal fees.
Mortgage discharge fees (if you change lenders).

When you add in prepayment penalties, a refinance could cost you thousands of dollars upfront. You have to work out the short- and long-term costs with a mortgage or financial advisor before pulling the trigger on a refinance.

Second mortgage

A second mortgage is a loan taken out against a home that already has a mortgage. You can access up to 80% of your home’s value, but the interest rates on second mortgages can be much higher than with regular mortgages.

A second mortgage can be quite risky, especially if it’s used to cover cash shortfalls. You’ll be expected to pay back both of your mortgages simultaneously, which could create serious financial pressure.

As with a HELOC, if you can’t make your payments, losing your house becomes a real possibility.

Second mortgage fees

Administration fees.
Appraisal fees.
Title search fees.
Title insurance fees.
Legal fees.

Reverse mortgage

Reverse mortgages are designed to help older Canadians generate cash flow without having to sell their homes, so they’re only available to homeowners aged 55 and older. If you’re eligible, you can access up to 55% of your home’s appraised value, either as a lump-sum or in installments.

Reverse mortgage repayment terms are quite flexible. You aren’t required to make any payments until you sell or move out of your house, or the final borrower dies. But you will be charged interest on any equity you pull out, and the interest rates on reverse mortgages can be much higher than regular mortgage rates.

Home equity line of credit (HELOC)
Mortgage refinance
Second mortgage
Reverse mortgage

HELOCs are one of the most commonly used equity takeout methods in Canada. You can usually apply for a HELOC when you get your mortgage, tap into it as needed and only pay back what you take out.

The key aspects of a HELOC include:

A strict borrowing limit. The most you can access is 65% of your home’s value.
Revolving debt, like a credit card. The amount you pay off gets added back to the amount you can borrow.
Interest-only repayment. Most HELOCs require you to make interest payments regularly. The principal can be paid down at your own pace.
Minimum equity requirements: 35% for a standalone HELOC, 20% if your HELOC is part of your mortgage.
The qualification process. If you apply for a HELOC separately, your finances will be evaluated as they would be for a mortgage.

While HELOCs can be useful, they’re also risky. Your property is your collateral. If you can’t maintain the interest payments, you could potentially lose your home.

Common HELOC fees

When getting a HELOC, you can expect to pay the following:

Legal fees for registering the collateral charge on your home.
Title search fees.
Application fees.
Home appraisal fees.
An origination fee.
Taxes.
A credit insurance fee.

Another common way of accessing equity is to refinance your mortgage, in what’s specifically known as a “cash-out refinance.”

Mortgage refinance fees

Legal fees.
Title search and title insurance fees.
Home appraisal fees.
Mortgage discharge fees (if you change lenders).

As with a HELOC, if you can’t make your payments, losing your house becomes a real possibility.

Second mortgage fees

Administration fees.
Appraisal fees.
Title search fees.
Title insurance fees.
Legal fees.

Your home equity options: A quick comparison

	HELOC	Refinance	Second mortgage	Reverse mortgage
Maximum equity takeout	65%	80%	80%	55%
Repayment	Interest-only	Interest and principal (replaces current mortgage)	Interest and principal	None required until home is no longer lived in
Pros	Revolving credit. Manageable payments. Favourable interest rates.	Could result in lower monthly payments. Better interest rates than most alternatives.	Rates are lower than unsecured loans. May be able to qualify with bad credit.	Flexible repayment terms. No need to sell your home.
Cons	Risk of default and losing your home. Variable interest rates that could increase multiple times.	Prepayment penalties can be high. Longer amortization can cost you more in interest in the long run.	Risk of default and losing your home. Fees and rates can be expensive.	Losing equity means less for your descendants to inherit. High interest rates.

When should you tap your home equity?

Ideally, home equity should be used carefully. You work hard to build it, so put it toward something that generates value.

Typically, home equity is best used to pay for:

Home improvements and renovations.
Education or job training.
An investment property’s down payment.
Nagging high-intest debt.
Starting a business.

Using home equity for lifestyle purchases — clothes, cars, boats, vacations — isn’t recommended. In these cases, you’re using an appreciating asset (your home) to help pay for depreciating assets or experiences with intangible value.

Is it time to put your equity to work?

One way to do that is by refinancing. Compare mortgage refinance rates to understand the options available.

Frequently asked questions

Is it a good idea to use a HELOC to pay for university or tuition?

That could be risky. A HELOC offers a lower interest rate than a standard personal loan, but it puts your home at risk and lacks the grace periods of official government student loans.

What’s the difference between a HELOC and a regular mortgage?

A mortgage is used to purchase a home and is paid down over time according to an amortization schedule. A HELOC is an optional line of credit secured by home equity that allows you to borrow, repay, and re-borrow as needed.

Can I get a second mortgage if I still have an active first mortgage?

Yes. A second mortgage is an additional loan taken out behind your primary mortgage. If you default, your original mortgage lender gets paid first.

Is a second mortgage the same as a home equity loan?

Yes. A home equity loan is a loan secured by an already mortgaged property, so a home equity loan is really just a type of second mortgage. The other main type is a HELOC.

Is getting a second mortgage a good idea?

A second mortgage is only a good idea if you can pay it off without damaging your finances. Depending on the lender, you may wind up with a high interest rate and a short, restrictive repayment schedule that can be hard to maintain if you’re already short on cash.

TL;DR:

Home equity is how much home you own after accounting for your remaining mortgage amount.
Home equity is generally accessed through home equity lines of credit, second mortgages, mortgage refinances and reverse mortgages.
Home equity is best used to pay for items that increase in value rather than lifestyle-enhancers.

DIVE EVEN DEEPER

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