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Home Equity Loan

Explore how home equity loans work in Canada, when to use them, and how to borrow responsibly against your property’s value.

Home Equity Loan

National Bank

May 22, 2025


What is a Home Equity Loan?

A home equity loan is a type of loan where homeowners borrow against the equity they've built in their property, using the home as collateral.

Why Home Equity Loans Matter in Real Estate

In Canadian real estate, home equity loans are useful tools for accessing large sums of money at relatively low interest rates. Equity is calculated as the current market value of the property minus any outstanding mortgage balance.

These loans are typically used for:
  • Home renovations
  • Debt consolidation
  • Education expenses
  • Large purchases

Home equity loans usually come with fixed interest rates and repayment terms, making them predictable and easier to budget than lines of credit. However, because the home is used as collateral, failure to repay the loan could result in foreclosure or power of sale.

Lenders generally allow borrowing up to 80% of the home’s appraised value, including the mortgage. Qualification depends on credit score, income, and the amount of existing debt.

Understanding home equity loans helps homeowners leverage their assets responsibly without overextending their finances.

Example of a Home Equity Loan?

A homeowner with $300,000 in equity borrows $50,000 through a home equity loan to renovate their kitchen and bathrooms.

Key Takeaways

  • Borrow against built-up home equity.
  • Fixed interest and repayment terms.
  • Used for major expenses or debt reduction.
  • Home is collateral—risk if unpaid.
  • Must meet lender eligibility criteria.

Related Terms

  • HELOC
  • Equity
  • Mortgage Refinancing
  • Secured Loan
  • Debt Consolidation

Additional Terms

Recourse Loan

A recourse loan is a type of loan where the lender can pursue the borrower’s personal assets, beyond the collateral, in the event of default.. more

Pari Passu

A pari passu clause is a contractual provision ensuring that multiple creditors share equally in repayment priority from the borrower’s assets.. more

Non-Recourse Loan

A non-recourse loan is a type of loan where the lender’s only remedy in case of default is to seize the collateral property; the borrower is not. more

Net Operating Income

Net operating income (NOI) is the total income generated by a property after operating expenses are deducted but before taxes and financing costs.. more

Mechanic's Lien

A mechanic’s lien is a legal claim by a contractor, subcontractor, or supplier for unpaid work or materials provided for a property.. more

Lis Pendens

Lis pendens is a legal notice filed in the land registry indicating that a property is subject to ongoing litigation that may affect its title.. more

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