What is a good HELOC rate in Canada?

The yardsticks: published HELOC rates and the typical secured line

The grade compares your rate with the lowest HELOC rates lenders publish today, collected with the date of each listing. Most are quoted as prime plus a margin, so the comparison is really a comparison of margins. Some of the lowest come from credit unions that lend only in their own province, which the checker notes beside the figure.

For context, the Bank of Canada publishes the effective interest rate charged on new secured personal lines of credit by chartered banks each month. It is published two to three months late, so the checker moves it by any change in the policy rate since then and labels it as an estimate.

That adjustment matters. Each lender sets its own prime rate, but prime is influenced by the Bank of Canada's target for the overnight rate. When the policy rate changes, prime rates feel it, and so do rates tied to prime. See prime rate explained and how the Bank of Canada rate affects you.

How the grader marks a HELOC

Enter the all-in rate you are paying or offered, not the margin, into the HELOC checker. It is graded by the gap to the lowest published HELOC rate, on the same A+ to F scale as mortgages, and the report card shows what the gap costs a year on your balance.

In the example, an illustrative 5.20% gets a mark of 90 out of 100 ("grade A"). It sits 0.10% above the best published rate of 5.10%, worth about $100 over a year on this balance. On that balance, each quarter point is worth roughly $250 a year.

What the margin is worth each year

HELOC interest is charged on whatever balance you carry, so the cost of a rate difference is easy to see on a yearly basis. Carrying $100,000 for a year at 5.70% costs $5,700 in interest; at 5.20% it costs $5,200. That half point is $500 a year, or about $475.00 against $433.33 a month in interest.

Unlike an instalment loan, a HELOC has no fixed end date, so a margin you accept today can apply for many years. The HELOC interest calculator shows the monthly interest on your balance and what a prime change would do to it.

When prime moves, your payment moves

HELOC rates are variable. If your rate is set as prime plus a margin and your lender's prime rate rises, your rate rises by the same amount, and so does the interest on your balance. FCAC's page on rising interest rates covers how to prepare for that.

• If your agreement requires only interest each month, the balance doesn't shrink unless you pay more.
• A rate rise increases the interest on the whole outstanding balance, not just new borrowing.
• Check whether you can convert part of the balance to a fixed-rate, fixed-term portion, and what that costs.

Beyond the rate: how the HELOC is set up

A HELOC can be up to 65% of your home's value. Combined with a mortgage, borrowing against your home can usually reach up to 80% of its value. A HELOC can be sold alongside a mortgage as a combined product, and how that is registered affects your options later.

• Registration — a collateral-charge mortgage can cost more to switch to another lender. Ask how the HELOC and mortgage are registered.
• Limit increases — ask whether the limit grows as you pay down the mortgage, and whether that happens automatically.
• Fees — ask about set-up, appraisal, legal and annual fees.
• Your rights — FCAC's page on lines of credit explains what a lender must tell you.

A ledger check for your HELOC

1. Find your all-in rate: your lender's prime rate plus or minus your margin.
2. Grade it in the HELOC checker using the balance you expect to carry.
3. Use the HELOC interest calculator to see the yearly cost of the margin.
4. If the score is low, ask your lender to review the margin; the HELOC script has wording.
5. If you're carrying a balance long-term, compare it with a fixed option; see HELOC versus refinance.