A HELOC and a personal line of credit are both revolving credit products — you are approved for a credit limit, draw from it as needed, pay interest only on what you have borrowed, and the available room replenishes as you repay. The fundamental difference is collateral. A HELOC is secured by your home, which earns you substantially lower interest rates but requires home ownership, equity, an appraisal, and a multi-week approval process. A personal line of credit requires no collateral, which means faster access and no risk to your property — but you pay 2–4 percentage points more in interest and face a much lower borrowing ceiling.
The right choice between them usually comes down to three variables: how much you need to borrow, how long you expect to carry the balance, and whether you own a home with equity to leverage.
Rate Difference: What It Actually Costs
The rate gap between a HELOC and a personal line of credit is not cosmetic — at meaningful balances, it translates to thousands of dollars per year in additional interest cost.
Both products are typically priced at prime plus a spread. HELOCs at major Canadian banks are priced at prime plus 0.50% as a standard rate. Personal lines of credit run prime plus 2.00% to 5.00% depending on your credit score, income, and which institution you use. At a prime rate of 4.95%, that puts HELOC rates around 5.45% and personal lines of credit at 6.95% to 9.95%.
| Balance | HELOC at 5.45% | Personal LOC at 8.45% | Annual Difference |
|---|---|---|---|
| $10,000 | $545 | $845 | $300 |
| $25,000 | $1,363 | $2,113 | $750 |
| $50,000 | $2,725 | $4,225 | $1,500 |
| $100,000 | $5,450 | $8,450 | $3,000 |
For a $50,000 balance carried for two years, the HELOC saves $3,000 in interest relative to a personal line of credit. If the HELOC setup costs (legal and registration fees of $500–$1,500) are factored in, the breakeven point on setup costs is typically reached within 6–12 months at this balance size. For smaller, shorter-term borrowing, the calculus shifts — on a $10,000 balance repaid within a year, the $300 interest saving may not justify $1,000 in setup fees.
Both rates are variable. Every Bank of Canada rate change passes through to your HELOC or line of credit rate within days. A 1% rate increase on a $100,000 HELOC adds $1,000 per year to your interest cost. Building a buffer into your repayment plan for rate movements is prudent when rates are not at their floor.
Borrowing Limits
HELOC borrowing limits are set by regulation, not by the lender alone. The Office of the Superintendent of Financial Institutions (OSFI) caps the maximum HELOC at 65% of your home’s appraised value, and the combined outstanding mortgage plus HELOC balance cannot exceed 80% of the home’s value. The practical formula:
Maximum HELOC = (Home value × 80%) − Outstanding mortgage balance
| Home Value | Mortgage Owing | Maximum HELOC |
|---|---|---|
| $400,000 | $250,000 | $70,000 |
| $500,000 | $300,000 | $100,000 |
| $600,000 | $300,000 | $180,000 |
| $800,000 | $400,000 | $240,000 |
| $1,000,000 | $500,000 | $300,000 |
These are maximum limits assuming the property appraises at the stated value and you qualify based on income and debt ratios. Lenders may offer less than the regulatory maximum based on their own risk assessment.
Personal lines of credit are not formula-based. Lenders set the limit based on your income, credit score, and total debt load. For most borrowers, personal lines of credit max out at $35,000–$50,000. Higher limits exist but are uncommon without exceptional income and credit profiles. This ceiling is a defining constraint: anyone who needs more than $50,000 in revolving credit access effectively must own a home to access it.
Qualification Requirements
A HELOC approval is more demanding than a personal line of credit because the bank is processing a secured lending transaction — similar in complexity to a mortgage.
For a HELOC, you need: a minimum credit score of 680 at most major banks, sufficient equity in your home (generally 20% or more after the HELOC is factored in), income verification, and debt service ratios within OSFI-mandated guidelines (Gross Debt Service ratio under 39%, Total Debt Service ratio under 44%). The bank will order a property appraisal, either full or drive-by, which may be covered by the lender or charged to you ($200–$500). Legal and registration fees add another $500–$1,000. Approval timelines run 2–6 weeks.
For a personal line of credit, the process is closer to a credit card application: credit score of 660 or higher, income verification, and a debt ratio review. No appraisal, no legal fees, no registration. Approval can come within one to five business days at most banks.
If you need access to funds urgently — within a week — a personal line of credit is the only realistic option. If you have time to plan and own a home, a HELOC is worth the longer process for the rate savings at larger balances.
The Interest-Only Payment Trap
The shared structural risk of both HELOCs and personal lines of credit is the minimum payment design. Unlike a fixed-rate loan where every payment reduces your principal, both of these products require only interest as a minimum payment. If you pay only the minimum, your balance does not decrease — ever. You could carry the same $50,000 balance indefinitely, paying $200–$350 per month in interest while owning exactly the same amount you started with.
This is not a hypothetical. Many Canadians carry line-of-credit balances for years — sometimes decades — making only interest payments. On a $50,000 HELOC at 5.5%, interest-only minimum payments cost $229 per month. Over ten years, that is $27,480 in interest paid on a balance that has not moved.
The discipline required to avoid this trap is external — set a fixed monthly payment that includes principal repayment, calculate a payoff date, and treat it like any other loan. A $50,000 balance at 5.5% paid down at $750/month (interest plus principal) clears in approximately 76 months with total interest of around $9,000 — versus unlimited interest-only payments that never end.
When to Use a HELOC
Major home renovations: The lower rate reduces borrowing costs, and value-adding renovations may increase the home’s equity — partially self-funding the loan.
Large debt consolidation: Rolling high-rate credit card debt (19–24%) or auto loans (7–12%) into a HELOC at 5–6% produces significant monthly cash flow savings. This only makes sense if you address the spending patterns that created the debt and do not reborrow from the consolidated balances.
The Smith Manoeuvre: A strategy that uses a readvanceable mortgage (where mortgage principal paid down automatically becomes available HELOC room) to invest borrowed funds in income-producing assets. The investment loan interest becomes tax-deductible, converting non-deductible mortgage debt into deductible investment debt over time. This requires a readvanceable mortgage product specifically and is best executed with tax advice.
Bridging between property transactions: Using HELOC equity to bridge a gap between buying and selling a home is a legitimate short-term use, typically for a period of weeks or months.
When to Use a Personal Line of Credit
You do not own a home: A HELOC is not available. A personal line of credit is the primary revolving credit option for renters.
You need less than $25,000 quickly: At smaller amounts and shorter durations, the rate savings of a HELOC may not exceed the setup costs. A personal line of credit with no setup fees and same-week approval is more practical.
You want to keep home equity accessible: Borrowing from your HELOC reduces available equity. If you expect to need that equity for something else — a home sale, a refinance, a renovation — a personal line of credit preserves the HELOC for its intended purpose.
Short-term cash flow management: For a predictable short-term gap (a large irregular expense, a slow-income month for the self-employed), a personal line of credit that you draw and repay within 60–90 days is simpler and cheaper than opening a HELOC.
Alternatives Worth Considering
If neither a HELOC nor a personal line of credit fits your situation, several alternatives are worth evaluating:
Fixed-rate personal loan: Forced amortization (you must make principal + interest payments) eliminates the interest-only trap. Rates are typically 6–10% — above HELOC but potentially below the high end of personal line of credit rates. Best when you want certainty on the monthly payment and a defined payoff date.
Mortgage refinance: If you need a large amount and have substantial equity, refinancing your mortgage and pulling equity out at the mortgage rate may be cheaper than a HELOC in some rate environments. This replaces your existing mortgage and restarts the amortization clock — consider the total interest cost over the new term, not just the monthly payment.
Balance transfer credit card: For short-term debt consolidation of amounts under $10,000–$15,000, a 0% balance transfer offer (typically 6–12 months) eliminates interest entirely for the promotional period. The balance must be repaid before the promotional rate expires, or the standard rate (19–25%) applies to the remaining balance.