--- title: Should I use a HELOC to pay down debt? date: 2025-01-28T13:45:00-05:00 author: Frank Fabiano canonical_url: "https://grantthorntonlimited.ca/en/debt-help-resources/articles/should-i-use-a-heloc-to-pay-down-debt" section: Articles --- [ Back to the hub ](https://grantthorntonlimited.ca/en/debt-help-resources/articles) # Should I use a HELOC to pay down debt? Frank Fabiano CPA, CIRP, Licensed Insolvency Trustee ![The outside of a yellow house](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleHero/15927/heloc-square.webp) Frank Fabiano CPA, CIRP, Licensed Insolvency Trustee As you pay down your mortgage, the equity tied in your home can be an appealing asset to manage financial stress. A Home Equity Line of Credit (HELOC) lets you use the equity in your home to cover large expenses or pay off debt, but is it worth the risk? We’ve answered the most common questions about HELOCs and debt so you can make an informed decision. ## **What’s a HELOC?** A HELOC is a revolving line of credit, which means you don’t have to borrow it all at once. Instead, you can withdraw some of the money, wait, and withdraw again up to a maximum approved amount. You have to pay interest on the amount borrowed, not the total approved amount, giving you more control over monthly payments. Unlike other lines of credit, like a personal or [student line of credit](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-is-a-student-line-of-credit), a HELOC is a secured debt attached to your home. This means you can be approved for a higher borrowing amount, up to 65% of your home’s market value, but if you fail to make payments your house could be leveraged as collateral by your lender to cover your debt. ## **What’s the difference between a HELOC and Home Equity Loan?** These terms sound similar but a Home Equity Loan, also known as a second mortgage, has different terms and risks than a HELOC. We’ve broken down the key differences below: Key differences Home Equity Line of Credit (HELOC) Home Equity Loan Borrowing limit You can borrow up to 65% of your home’s market value. You can borrow up to 80% of your home’s value minus the amount remaining on your mortgage. Timeline Once approved, you can withdraw funds at any time up to the total approved amount. Once approved, you will receive the loan as a single lump sum payment. Interest rates Only available at variable interest rates. HELOC rates also tend to be higher than Home Equity Loan interest rates. Offered at both fixed and variable interest rates that are locked in for a set time span. Repayment You are only required to make interest payments once you start borrowing. There is no payment schedule for the principal amount. Like a mortgage and other loans, Home Equity Loans must be repaid on a schedule. Sale of home Any unsettled debt will be taken out of the home’s sale. Any unsettled debt will be taken out of the home’s sale. ## **Should I use a HELOC or consolidation loan to pay off debt?** Not everyone owns a home, making a [consolidation or personal loan](https://grantthorntonlimited.ca/en/debt-help-resources/articles/consolidation-loan-vs-consumer-proposal-whats-the-difference) the only option. Even for homeowners, it can be frightening to put your home up as collateral. Both HELOCs and consolidation loans have lower interest rates than credit cards. Unlike HELOCs, consolidation loans have a set repayment schedule that can be difficult to manage if you are facing a gap in income like [unemployment](https://grantthorntonlimited.ca/en/debt-help-resources/articles/a-guide-to-managing-your-finances-for-the-newly-unemployed). Personal loans also tend to have lower borrowing limits than a HELOC, which could further limit your options. It’s important to remember that a HELOC is still a [secured debt](https://grantthorntonlimited.ca/en/debt-help-resources/articles/whats-the-difference-between-secured-and-unsecured-debt). Unlike a personal loan or [credit cards](https://grantthorntonlimited.ca/en/debt-help-resources/articles/options-for-getting-out-of-credit-card-debt), a HELOC is connected to an asset and if you fail to maintain payments your lender could claim your home as collateral. Whatever debt consolidation option you choose, it’s important to stay out of debt in the future. Paid off credit cards and access to more money through a HELOC or personal loan can encourage negative spending habits. When using a loan or line of credit to pay down debt, it’s important to stick to a [budget](https://grantthorntonlimited.ca/en/debt-help-resources/articles/how-to-make-a-basic-budget-and-stick-to-it) and [analyze your spending mindset](https://grantthorntonlimited.ca/en/debt-help-resources/articles/which-spending-personality-are-you) so you can focus on debt repayment. When making major financial decisions about debt, it’s important to [consult a professional like a Licensed Insolvency Trustee](https://grantthorntonlimited.ca/en/debt-help-resources/articles/what-happens-when-you-meet-with-a-lit) (LIT). ## **What if I can’t pay off my HELOC?** If you fail to pay your HELOC, your lender could foreclose on your home to cover the debt. However, if you still have a mortgage on your house, that'll have to be paid first. HELOC lenders are less likely to pursue foreclosure if you have low equity in your home. This doesn’t mean HELOC lenders won’t pursue you for the money you owe. Instead of going after your home, HELOC lenders can take [legal action to garnish your wages](https://grantthorntonlimited.ca/en/debt-help-resources/articles/wage-garnishment-how-it-works-and-what-you-can-do) or bank accounts, and even claim other assets, like vehicles, to repay your debt. Like any debt, it is important to stay on top of HELOC payments, but this isn’t always possible. If you're unable to pay your HELOC or other debts, it might be time to talk with a LIT about the right debt solution for you. ## **Can I file for bankruptcy if I own a home?** [One of the requirements for filing bankruptcy is being unable to reasonably pay off your debts](https://grantthorntonlimited.ca/en/bankruptcy/what-is-bankruptcy). Homeowners with high equity in their homes may not meet this requirement since they could potentially get a HELOC to repay their debt. It should be noted that not everyone is able to access the equity in their homes because they may not have the monthly cash flow to support the interest payments If you’re unable to reasonably repay your debt and you own a home, a percentage of your home equity is protected in bankruptcy. [Each province has their own asset exemptions](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-assets-can-i-keep-in-bankruptcy), so be sure to review the laws for your province. If your equity fits within your province’s exemptions and you can continue making mortgage payments in addition to your bankruptcy responsibilities, you should be able to keep your home. However, bankruptcy is not the only option for homeowners seeking debt relief. More homeowners are turning to consumer proposals which [allow you to settle your debt while protecting assets like your home and car.](https://grantthorntonlimited.ca/en/consumer-proposal/what-is-a-consumer-proposal) To find out if this is the right option for you, [book a free consultation with one of our debt solutions professionals](https://grantthorntonlimited.ca/en/get-in-touch/contact-us) and start your journey to debt freedom! About the Author Frank Fabiano CPA, CIRP, Licensed Insolvency Trustee ## Latest articles [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/67684/assets-CP-square.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [What happens to your assets in a consumer proposal? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/65155/recreational-vehicle-square.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [### What happens to an RV, boat, or ATV loan if you file a consumer proposal or bankruptcy in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/63555/influencer-survey.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) [### Influenced into debt: How social media impacts Canadians' finances ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) ## Subscribe to our newsletter Get tips and tools to help manage your finances and live debt free. \*I agree to receive communications from Doane Grant Thornton. I understand that I can unsubscribe at any time. ## **Take the first step** to debt freedom Speak to one of our debt solutions professionals during a free, no-obligation consultation. [ Book a free consultation ](https://grantthorntonlimited.ca/en/get-in-touch/contact-us) ## Related articles ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/67684/assets-CP-square.webp) ### [What happens to your assets in a consumer proposal? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) In most cases, a consumer proposal allows you to keep all of your assets while bankruptcy may require you to surrender certain non-exempt assets. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) ![Marina filled with sailboats and recreational boats along the Charlottetown waterfront on a sunny day.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/65155/recreational-vehicle-square.webp) ### [ What happens to an RV, boat, or ATV loan if you file a consumer proposal or bankruptcy in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) For many Canadians, recreational vehicles offer freedom, adventure, and unforgettable family memories. But if you’ve financed an RV, travel trailer, boat, ATV, snowmobile, or side-by-side, those monthly payments can become difficult to manage if life takes an unexpected turn. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) ![A woman in scrubs sitting on a park bench looking at her phone, with imagery of social media likes and spending surrounding her.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/63555/influencer-survey.webp) ### [ Influenced into debt: How social media impacts Canadians' finances ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) While social media may be free to use, the things it influences us to buy often come at a cost. As influencer marketing continues to grow, more Canadians are making purchases based on what they see online. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) ![A woman sitting with papers and a calculator in front of her](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/63201/cp-annulment-square.webp) ### [ What happens if you miss a consumer proposal payment? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-miss-a-consumer-proposal-payment) Missing a payment during your consumer proposal can feel scary—but it’s not the end of the road. This article explains exactly what happens if you miss a consumer proposal payment, how to avoid annulment, and what to do if your consumer proposal is annulled. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-miss-a-consumer-proposal-payment) ![A young woman sits with and supports an older woman holding a cane.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/Web-image-square/_articleThumbMedium/58677/caregiver-article-square.webp) ### [ Tips to avoid debt as a family caregiver in Canada ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-tips-to-avoid-debt-as-a-family-caregiver-in-canada) With the rising cost of living and long waitlists for long-term care, more Canadians are becoming family caregivers, but it can come with an emotional and financial cost. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-tips-to-avoid-debt-as-a-family-caregiver-in-canada) ![Person packing a box for moving](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/57664/adult-child-moving-home-square.webp) ### [ How to budget when your adult child moves back home ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-how-to-budget-when-your-adult-child-moves-back-home) Adult children moving back home isn’t just a trend—it’s quickly becoming the norm. While the cost of living continues to climb across Canada, many Gen Z and millennial Canadians are packing up their apartments and returning to the nest as “boomerang kids.” [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-how-to-budget-when-your-adult-child-moves-back-home) ![Person looking down at bills with head in hand, surrounded by paperwork and an open laptop.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/56923/utilities-square.webp) ### [ What happens if you don’t pay your utility bills in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-dont-pay-your-utility-bills-in-canada) If you’re worried about unpaid electricity, heating, or water bills, you’re not alone. But disconnection isn’t immediate, and you usually have options to protect your service while you get back on track. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-dont-pay-your-utility-bills-in-canada)