Home Equity & HELOC
Readvanceable Mortgages in Canada: How They Work
A readvanceable mortgage pairs a mortgage with a home equity line of credit that grows as you repay principal — how it works in Canada and what to weigh.
A readvanceable mortgage is a mortgage paired with a revolving line of credit that automatically grows as you pay down your mortgage principal. In Canada, lenders typically register it as a mortgage plus a home equity line of credit (HELOC) behind one charge on your property title, so every dollar of principal you repay becomes borrowing room you can use again.
What Makes a Mortgage Readvanceable?
A standard closed mortgage is a one-way street. Your scheduled payments shrink the balance permanently, and the only way to get that money back is to refinance, break the term, or take on a separate loan. A readvanceable mortgage removes that friction. The credit limit on the revolving portion rises as the mortgage balance falls, up to the overall limit set when the plan was set up.
That overall limit is the number that matters most. It is normally set as a percentage of your home's appraised value at the time of setup, and it does not rise on its own just because your property gains value. If you want to capture market appreciation, you generally need a new appraisal and a refinance.
How a Readvanceable Mortgage Works in Practice
Most products sold in Canada split into two connected parts:
- The amortizing mortgage portion. A fixed or variable-rate term with regular principal-and-interest payments, just like any other mortgage.
- The revolving portion. A line of credit priced off the lender's prime rate, usually variable, with a minimum payment that is often interest-only.
The mechanics are straightforward: every principal payment you make on the mortgage portion increases your available revolving credit by the same amount. You decide when to draw on it and how much, and you can repay and re-borrow repeatedly without reapplying.
| Feature | Traditional closed mortgage | Readvanceable mortgage |
|---|---|---|
| Access to repaid principal | Only through refinancing | Automatic as you pay down the mortgage |
| Credit limit | Fixed at the original loan amount | Revolving portion grows over time |
| Rate on accessed funds | Mortgage rate after refinancing | Usually prime plus or minus a spread |
| Minimum payment | Full amortized payment | Amortized on the mortgage; often interest-only on the line |
| Qualification | Stress tested on the mortgage balance | Stress tested on the full combined limit |
Readvanceable Mortgage vs. a Standalone HELOC
A standalone home equity line of credit gives you a fixed revolving limit. Paying down your mortgage does not increase it, and you would need to reapply or refinance to unlock more. A readvanceable plan is the version that grows with your equity. If you are weighing a lump-sum product against a revolving one, the comparison in home equity loan vs HELOC walks through the trade-offs.
Qualifying: The Stress Test, GDS/TDS, and OSFI B-20
Readvanceable mortgages are stress tested on the entire combined limit, not only the balance you intend to use. Lenders must confirm you could carry the full amount at the higher of your contract rate plus two percentage points or the published qualifying-rate floor. Confirm the current floor with OSFI or your lender, since it is set administratively and changes over time. The mortgage stress test applies whether the mortgage portion is fixed or variable.
Your GDS and TDS ratios are also calculated against that full limit. Property taxes, heating costs, and half of condo fees count toward your gross debt service ratio, so a large combined limit can squeeze the amount you qualify for.
For federally regulated lenders, OSFI Guideline B-20 governs combined loan-to-value. In general terms, the revolving portion of a readvanceable plan is capped below the home's full value, with the combined mortgage-plus-line limit set higher than the revolving cap on its own. Because these are regulatory limits that can be updated, confirm the exact current percentages with your lender rather than assuming a figure.
Availability also depends on how your mortgage is insured. If your loan is insured by CMHC because your down payment was under 20%, a readvanceable structure is typically unavailable until the mortgage is no longer insured. Ask your lender how your file would need to be restructured.
What It Costs
Setup costs vary widely by lender. Some waive fees entirely, while others charge an appraisal, a legal or registration fee, or an annual fee on the line of credit. The rate on the revolving portion is usually higher than your mortgage rate and moves with prime. Ask for the full fee schedule and the rate spread in writing before you sign, and test what a payment on the line would look like with the HELOC payment calculator.
The Risks You Need to Manage
Three risks stand out. First, payment shock: because the line is usually variable and often interest-only at minimum, a rising prime rate raises your cost immediately while barely touching the balance. Second, secured debt creep: using the line to consolidate credit card debt converts unsecured balances into debt secured by your home, so a missed payment puts the property itself at risk. Third, switching friction: readvanceable plans are commonly registered as a collateral charge, which can mean extra legal costs if you later want to move to another lender.
Questions to Ask Before You Sign
- What is the total combined limit, and how was my home valued?
- Is the plan a collateral charge, and what would it cost to discharge it later?
- What is the current rate on the revolving portion, and how is it set relative to prime?
- What is the minimum payment on the line, and can I set it higher?
- Are there annual, inactivity, or re-advance fees?
- How quickly does repaid principal become available credit again?
A readvanceable mortgage is a flexible tool, not free money. It works best when you already have a repayment plan for whatever you draw and you keep the line for planned, short-term needs rather than ongoing spending.
Frequently asked questions
What is a readvanceable mortgage in Canada?
It is a mortgage combined with a revolving line of credit that increases automatically as you pay down the mortgage principal. Lenders register it as a single charge on title, so repaid principal becomes available credit again without a new application. It suits borrowers who want ongoing access to home equity and can manage a variable-rate line responsibly.
Is a readvanceable mortgage the same as a HELOC?
Not quite. A HELOC is just the revolving portion. A readvanceable mortgage bundles an amortizing mortgage with a HELOC and links them, so your line of credit limit grows as the mortgage balance falls. A standalone HELOC stays at a fixed limit unless you refinance or reapply with the lender.
Do I need 20% down for a readvanceable mortgage?
Typically, yes. If your mortgage is insured by CMHC because your down payment was under 20%, lenders generally cannot attach a revolving line of credit to it. Once you have enough equity and the loan is no longer insured, a readvanceable structure may become available. Confirm your options with your lender.
Can I lose my home if I only make interest payments on the line?
Paying interest-only keeps the account current, so you are not in default simply for doing that. The risk is that the balance never falls while interest costs rise. Because the debt is secured by your home, prolonged non-payment can eventually put the property at risk, so treat the line as debt you plan to repay.