Canadians Love HELOCs But Regulators Aren’t So Sure
For many Canadians, a Home Equity Line of Credit (HELOC) feels like the perfect financial tool: flexible, low-cost borrowing against your own home. Need to renovate? Cover tuition? Consolidate debt? A HELOC promises easy access without the rigidity of a traditional mortgage.
But Canada’s top regulator for consumer lending, the Financial Consumer Agency of Canada (FCAC), has been raising concerns. As recently as September 2025, FCAC hit TD Bank with a $5.5 million penalty for failing to provide accurate disclosure around the cost of borrowing on loans and home equity products, including HELOCs (source: Canada.ca).
That’s not just theory. That’s enforcement.
So the question is simple: Are HELOCs as safe as they seem, or do the risks outweigh the benefits? Let’s break it down.
What Exactly Is a HELOC? (Quick Refresher)
A home equity line of credit is a revolving credit line secured against your home, think of it like a giant credit card backed by your house.
- You’re approved for a certain limit (say, $100,000)
- You can draw, repay, and redraw funds as needed
- You only pay interest on what you borrow, not the full limit
- Most home equity lines of credit have variable interest rates tied to the prime rate
This flexibility makes HELOCs attractive, but it’s also what makes them risky. Unlike a traditional mortgage, there’s no built-in repayment schedule, and that’s where many Canadians get trapped.
Why FCAC Raised Concerns About HELOCs
The FCAC has studied HELOCs for years and continues to flag consumer risks. In its “Home Equity Lines of Credit: Market Trends and Consumer Issues” review, the agency noted that many borrowers:
- Make only minimum interest payments
- Don’t have a plan to repay the principal
- Repeatedly borrow against their home for everyday expenses
- Underestimate the impact of rising interest rates
On its official consumer guidance page (updated 2024), FCAC warns that borrowing against home equity comes with serious consequences: if you can’t repay, you risk losing your home.
The Big Risks You Need to Know
Here’s where the FCAC, and we want you to pay attention.
1. Variable Interest Rates Can Spike
Most HELOCs are tied to prime. When the Bank of Canada hikes rates, your HELOC costs rise immediately.
Example: $50,000 borrowed at 5% = $2,500/year in interest.
If the rate climbs to 7%, that becomes $3,500/year.
2. The “Interest-Only” Trap
Many Canadians make only interest payments and never touch the principal. That $50,000 balance can sit for years, costing thousands in interest with no end in sight.
3. Re-Borrowing Creates a Debt Cycle
Unlike a mortgage, where each payment reduces your balance, HELOCs are revolving. It’s easy to repay $10,000, then borrow it again next month.
4. Housing Market Risk
HELOCs depend on home equity. If home values fall while your home equity line of credit balance grows, you could end up owing more than your home is worth, a dangerous position if you need to refinance or sell.
5. Debt Consolidation Can Backfire
Using a home equity line of credit to pay off high-interest debt seems smart, but without discipline, people often run up their credit cards again, ending up with two layers of debt.
How to Use a Home Equity Line of Credit Responsibly
HELOCs aren’t inherently bad, they can be powerful financial tools if used correctly. The FCAC isn’t calling for a ban; it’s simply saying, “Know the risks.”
Here’s how to stay smart:
- Treat It Like a Loan, Not a Credit Card, Even if interest-only payments are allowed, set a principal repayment plan (e.g., clear the balance within 3 – 5 years).
- Budget for Rate Hikes – Assume rates will rise. Stress-test your payments at +2% interest.
- Use It for Assets, Not Lifestyle – Renovations that add home value? Smart. Vacations or new gadgets? Not so much.
- Consolidate with Discipline – If you clear credit cards with a HELOC, lower your limits or close the cards.
- Compare Alternatives – In some cases, a debt consolidation mortgage may be safer and cheaper.
Questions to Ask Before You Sign
Before opening a HELOC, sit down with your lender or broker and ask:
- What’s today’s rate, and how often can it change?
- Are payments interest-only, or can I set a fixed schedule?
- How quickly can the bank demand repayment?
- What happens if my home’s value drops?
- What protections apply under Ontario and federal regulations?
If you can’t get straight answers, walk away.
Why Regulation Matters
In Ontario, HELOCs and mortgage products are governed by the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and Ontario Regulation 188/08, Standards of Practice. Federally, the FCAC enforces disclosure rules and consumer protections.
The September 2025 TD Bank penalty shows that regulators are serious, FCAC isn’t just writing reports; it’s penalizing lenders who fail to provide clear, accurate borrowing disclosures.
But remember: disclosure doesn’t equal understanding. Many homeowners sign HELOC agreements without realizing the long-term risks, that’s why working with a licensed brokerage that prioritizes education and compliance is essential.
The Bottom Line
HELOCs aren’t villains. They’re flexible and useful, but they come with risks the FCAC wants Canadians to understand.
The danger isn’t the product itself; it’s how people use it, as free money, without a repayment plan, and without preparing for rising rates.
If you’re thinking about opening or managing a HELOC in 2025:
- Understand the risks
- Have a repayment plan
- Stress-test your budget
- Get regulated advice
At Mortgage Brain, we help Canadians use home equity responsibly.
If you already have a HELOC or are considering one, our licensed team can walk you through your safest options.
Contact us today to learn how we can help you make your equity work smarter for you.
