How HELOC Interest Is Calculated in Canada
A home equity line of credit (HELOC) charges interest only on the amount you have drawn, starting the day you draw it, at a variable rate that is usually your lender's prime rate plus a spread. With prime at 4.45% in late October 2026, a HELOC priced at prime plus 1% charges 5.45%, which on a $50,000 balance is about $7.47 a day, or $224 in a 30-day month. Lenders differ on exactly how they accrue and post interest, so this guide models a daily rate (the annual rate divided by 365, charged to the account monthly) and says where that is an assumption. It then shows what interest-only payments cost, what repaying the principal changes, what a rate move does, and how the borrowing limit is set.
The ingredients
Four inputs set the interest charge on a HELOC.
| Input | What it is | 2026 value or source |
|---|---|---|
| Prime rate | The lender's base lending rate, which moves when the Bank of Canada changes its policy rate | 4.45% in the Bank of Canada's weekly series for October 21, 2026 |
| Spread | The lender's margin over prime, often negotiable | FCAC's example is prime plus 1%; the tables below use 0.5, 1 and 1.5 points |
| Balance | What you have drawn and not repaid, day by day | Changes with every draw and payment |
| Days | Calendar days in the period | 28 to 31 a month |
The Financial Consumer Agency of Canada (FCAC) describes the structure plainly. With a HELOC you only pay interest on the amount you borrow, and interest starts as soon as you withdraw money. Most HELOCs have a variable rate that is typically based on the lender's prime rate: its example is a prime rate of 5.85% and a HELOC at prime plus 1%, which gives 6.85%. The lender may change your rate at any time, and a federally regulated lender must notify you in writing within 30 days of the change.
The Bank of Canada's policy rate was 2.25% at the September 2, 2026 decision, unchanged since the cut on October 29, 2025. The gap between that and the 4.45% prime rate is 2.20 points. Prime is set by each lender, so the policy rate matters through prime and not directly.
What a daily rate is
One way to charge interest is to divide the annual rate by 365 to get a daily rate, multiply by the balance and by the number of days. At prime plus 1%:
daily interest = balance × 0.0545 ÷ 365
For $50,000 that is $50,000 × 0.0545 ÷ 365 = $7.4658 a day. In a 30-day month the charge is $223.97, and in a 31-day month $231.43. The account might show the same thing as an annual rate of 5.45% or as an effective annual rate of about 5.6%, which is the rate once interest that is left unpaid is itself charged interest. This 365-day, monthly-posting method is an assumption in this guide. The credit agreement and the statement state a lender's actual method, and the section at the end shows how to check it.
One month with draws and a repayment
The balance on a HELOC changes. The way to see what the account charges is to add up the interest on each stretch where the balance did not change.
Suppose a 30-day month at 5.45%. The account starts with a balance of $30,000. On day 10 there is a $15,000 draw for a contractor's deposit, and on day 20 a $5,000 repayment.
| Days | Balance | Balance × days |
|---|---|---|
| 1 to 9 (9 days) | $30,000 | $270,000 |
| 10 to 19 (10 days) | $45,000 | $450,000 |
| 20 to 30 (11 days) | $40,000 | $440,000 |
| Total | $1,160,000 |
The average daily balance for the month is $1,160,000 ÷ 30 = $38,666.67, and the interest is $1,160,000 × 0.0545 ÷ 365 = $173.21. Notice what this shows. The ending balance is $40,000, and a lender that charged interest on the ending balance would have charged $179.18 for the month, about $6 more, because it would have ignored that the $15,000 was only outstanding for 21 days. Daily balance accrual rewards a repayment on any day, and a draw is charged from the day it is made.
What carrying a balance costs
The minimum payment on many HELOCs is the interest. The FCAC notes that a lender may require only interest, or part of the principal and the interest. Interest-only payments of this kind cost a monthly amount of about balance × annual rate ÷ 12, which is a close average of the daily charges. The table shows the cost at three spreads over the 4.45% prime rate.
| Balance | Prime + 0.5 (4.95%) | Prime + 1 (5.45%) | Prime + 1.5 (5.95%) |
|---|---|---|---|
| $20,000 | $82.50 | $90.83 | $99.17 |
| $50,000 | $206.25 | $227.08 | $247.92 |
| $100,000 | $412.50 | $454.17 | $495.83 |
| $150,000 | $618.75 | $681.25 | $743.75 |
A half point of spread is worth $41.67 a month for every $100,000 drawn. That is why a negotiated spread is worth asking about, because it is paid for as long as the balance is outstanding. The FCAC says you may be able to negotiate your rate with your lender.
Interest-only against paying the principal
The same $50,000 at 5.45% can be carried or repaid. The comparison shows why the FCAC cautions that if you only pay interest, you won't pay off the loan.
| Way to repay | Monthly payment | Interest over the period | Balance at the end |
|---|---|---|---|
| Interest only, 10 years | $227.08 | $27,250 | $50,000 |
| Repay over 5 years | $953.90 | $7,234 | $0 |
| Repay over 10 years | $541.39 | $14,967 | $0 |
| Repay over 15 years | $407.22 | $23,299 | $0 |
| Repay over 20 years | $342.53 | $32,208 | $0 |
Ten years of interest-only payments cost $27,250 and leave the whole $50,000 owing. Repaying the same amount over 10 years costs $14,967 of interest, $12,283 less, for a payment that is $314 a month higher. The amortizing rows assume the rate stays at 5.45% and the account compounds monthly, which simplifies the daily method slightly. The interest-only row also assumes the rate holds for ten years, which a variable-rate product does not promise.
This is the same mechanism as in the minimum-payment trap guide, with a much lower rate. The difference between a HELOC and a credit card is the rate, not the shape: at 5.45% a balance costs $45.42 per $10,000 each month, and at 19% it costs $158.33.
| Rate on $10,000 | Interest per month | Interest per year (simple) |
|---|---|---|
| 5.45% | $45.42 | $545 |
| 8% | $66.67 | $800 |
| 19% | $158.33 | $1,900 |
The credit card interest guide shows how the credit card version is calculated statement by statement. The debt consolidation guide covers the question of moving card balances to a lower-rate product and what that does and does not save.
When the rate moves
A HELOC rate is variable, so the payment follows prime. The table shows how many dollars a month each full point adds, on three balances.
| Balance | +1 point | +2 points | +3 points |
|---|---|---|---|
| $50,000 | $41.67 | $83.33 | $125.00 |
| $100,000 | $83.33 | $166.67 | $250.00 |
| $150,000 | $125.00 | $250.00 | $375.00 |
The arithmetic is balance × points ÷ 100 ÷ 12. A balance of $100,000 that sits at prime plus 1% costs $454.17 a month at 5.45%. If prime rises three points, it costs $704.17, so the payment goes up 55%. The FCAC makes the same point: a change may increase your minimum monthly payment, so make sure you can afford higher payments if rates change. For an interest-only HELOC, there is no cushion of principal repaid in the meantime.
A renovation year, month by month
A full year makes the pattern concrete. A homeowner draws $20,000 on January 1 for the first stage of a renovation, $15,000 on March 1, and $10,000 on June 1. On September 1 a $5,000 repayment goes in. The rate is prime plus 1%, 5.45%, all year, and the interest is paid from the chequing account each month. The monthly interest is balance × 0.0545 × days ÷ 365.
| Month | Days | Balance | Interest |
|---|---|---|---|
| January | 31 | $20,000 | $92.58 |
| February | 28 | $20,000 | $83.62 |
| March | 31 | $35,000 | $162.01 |
| April | 30 | $35,000 | $156.78 |
| May | 31 | $35,000 | $162.01 |
| June | 30 | $45,000 | $201.58 |
| July | 31 | $45,000 | $208.29 |
| August | 31 | $45,000 | $208.29 |
| September | 30 | $40,000 | $179.18 |
| October | 31 | $40,000 | $185.15 |
| November | 30 | $40,000 | $179.18 |
| December | 31 | $40,000 | $185.15 |
| Year | 365 | $2,003.81 |
The year's interest is $2,003.81 on a balance that averaged about $36,800 during the year. Two things in the table are worth noticing. The monthly figure is not constant even with a constant balance, because February has 28 days and December 31, so a payment of "interest only" varies by a few dollars. And the $5,000 repayment in September cuts the monthly charge by only about $22.71 ($5,000 × 0.0545 ÷ 12), because repaying principal reduces the charge in proportion to the money repaid and no faster.
Now suppose prime rises one point on July 1, so the rate is 6.45% for the second half. The balance and draws are the same.
| Month | Interest at 5.45% | Interest at 6.45% |
|---|---|---|
| July | $208.29 | $246.51 |
| August | $208.29 | $246.51 |
| September | $179.18 | $212.05 |
| October | $185.15 | $219.12 |
| November | $179.18 | $212.05 |
| December | $185.15 | $219.12 |
| Second half | $1,145.24 | $1,355.36 |
The year's interest becomes $2,213.95, which is about $210 more. The effect of the rate move is a fixed share of the balance, and it scales with the balance: on the same schedule a $100,000 balance would see the increase double.
What happens if you skip the payments
A HELOC that requires interest to be paid is a different arrangement from one where unpaid interest is added to the balance. When interest is left unpaid and added to the balance, the next month's interest is charged on the larger figure. The effect over a few months is small, because the base is only slightly larger each time. For a $50,000 balance at 5.45% with no payments for three 30-day months and interest added each month:
| Month | Interest added | Balance at month end |
|---|---|---|
| 1 | $223.97 | $50,223.97 |
| 2 | $224.98 | $50,448.95 |
| 3 | $225.98 | $50,674.93 |
The three months cost $674.93 of interest, against $671.92 of simple interest, a difference of $3.01. Compounding matters over years and large balances, not over one skipped quarter. What matters in a short stretch is the size of the balance and the rate. Missed payments have consequences outside the arithmetic, in the lender's terms, and the FCAC's warning that a lender may take possession of the home if you don't repay is the reason to read those terms before drawing.
Mortgage plus HELOC: the blended rate
A HELOC combined with a mortgage lets the two balances sit side by side at different rates, and the cost of the whole is a weighted average. Take a $350,000 mortgage at 4.5%, with a HELOC at prime plus 1%, 5.45%.
| HELOC balance | Blended rate | Monthly interest, mortgage | Monthly interest, HELOC |
|---|---|---|---|
| $0 | 4.500% | $1,312.50 | $0 |
| $25,000 | 4.563% | $1,312.50 | $113.54 |
| $50,000 | 4.619% | $1,312.50 | $227.08 |
| $100,000 | 4.711% | $1,312.50 | $454.17 |
The monthly mortgage figure is interest only, for comparison; a real mortgage payment also repays principal. The blended rate rises less than the HELOC rate does because the mortgage is the larger share. The blended number is useful in one way: it shows that a modest HELOC balance on top of a large mortgage has a small effect on the average cost, though its own rate, which is variable, can move more than the mortgage's.
Three ways to carry a $40,000 draw
The interest rate is the same in each case below, 5.45%, and the amount drawn is $40,000 for a kitchen. What differs is the plan.
| Plan | Monthly payment | Interest over the period | Balance at the end |
|---|---|---|---|
| Interest only for 5 years | $181.67 | $10,900 | $40,000 |
| Repay over 5 years | $763.12 | $5,787 | $0 |
| Repay over 10 years | $433.11 | $11,974 | $0 |
Interest-only for five years costs $10,900 and leaves the $40,000 in place, about twice the interest of repaying the whole sum over five years. The ten-year plan costs $1,074 more interest than five years of interest-only payments, but it clears the balance, and its payment is $251 a month higher than the interest-only figure. The comparison shows the real price of the lowest payment: it is paid for with a balance that is still there afterwards.
Three paths for the rate
Because the rate is variable, a total interest figure needs an assumption about prime. The table shows five years of interest on a $100,000 interest-only balance, at prime plus 1%, under three paths for prime: flat at 4.45%, rising half a point a year, and falling half a point a year.
| Path | Rate in years 1 to 5 | Total interest |
|---|---|---|
| Flat | 5.45%, 5.45%, 5.45%, 5.45%, 5.45% | $27,250 |
| Rising 0.5 a year | 5.45%, 5.95%, 6.45%, 6.95%, 7.45% | $32,250 |
| Falling 0.5 a year | 5.45%, 4.95%, 4.45%, 3.95%, 3.45% | $22,250 |
The spread between the high and low paths is $10,000 over five years on this balance. None of the three is a forecast, and a real path would not move in steps this tidy. They show the size of the exposure: each half point a year, compounding in direction, moves the five-year total by $5,000 per $100,000 drawn.
Checking a statement against the formula
A statement should be reproducible. Take the opening balance, apply every draw and payment on the day it posts, and sum balance × days. Multiply by the annual rate and divide by 365. The statement's interest line should match to within a few cents; a difference of more than that usually means the lender uses a different day count, charges interest from a different date or applies payments with a delay. A rate of prime plus a spread should also track the lender's published prime on the date it changed, and the notice requirement of 30 days applies to a change in the rate for a federally regulated lender.
How the borrowing limit is set
Two limits apply. The FCAC says you may borrow up to 65% of your home's value with a HELOC, and that a standalone HELOC needs more than 35% equity while a HELOC combined with a mortgage needs a minimum of 20%. OSFI's Guideline B-20, the underwriting guideline for federally regulated lenders, sets the same 65% from the lender's side: the non-amortizing (revolving) HELOC component should be limited to a loan-to-value of 65% or less. Credit beyond that can be extended, but the portion above the 65% threshold should be amortized. B-20 also describes conventional mortgages as those with a loan-to-value of 80% or less, and the FCAC's 20% minimum equity for a combined product matches that.
Equity is value minus debts, including the mortgage. Two cases show how the limits work. For a standalone HELOC, the FCAC's example is a $500,000 home with a $200,000 mortgage: equity is $300,000, or 60%. Reading the 65% as a ceiling on all secured debt, the HELOC room is 65% of $500,000 minus $200,000, which is $125,000. For a HELOC combined with a mortgage, which the FCAC calls a readvanceable mortgage, the available credit grows as the mortgage principal is paid down. Assume a $700,000 home and a $350,000 mortgage at 4.5% over 25 years. With total secured debt at most 80% of value ($560,000) and the revolving part at most 65% of value ($455,000), the room is the smaller of $455,000 and $560,000 minus the mortgage balance.
| Time | Mortgage balance | Room to 80% of $700,000 ($560,000) | Revolving ceiling (65%) |
|---|---|---|---|
| Start | $350,000 | $210,000 | $455,000 |
| After 5 years | $307,503 | $252,497 | $455,000 |
| After 10 years | $254,305 | $305,695 | $455,000 |
The room is the 80% figure each time, because it is below the revolving ceiling. How a particular lender combines the limits is set out in its product terms. The room is not money: the interest charge depends only on what you draw, and the limit changes if the home is reappraised. A bank HELOC also requires passing a stress test at a qualifying rate.
What the account does not tell you
A HELOC's headline rate is a single number, but several other terms decide what you pay. The FCAC lists the costs of setting up one, namely a home appraisal, legal fees to register the charge, a title search, administration and monthly fees, plus cancellation and discharge fees when you close it. It gives no dollar amounts for those, so a lender's schedule is the place to find them. The rate can be changed by the lender at any time, and because the line is secured on your home, the FCAC warns that if you do not repay, the lender may take possession of it, and that if you sell the home you must repay the line. It also notes that optional credit insurance may be offered and that you do not need to buy it to be approved.
One caution on the prime figure used throughout. The FCAC speaks of your lender's own prime rate, while the 4.45% quoted here is the Bank of Canada's series for the chartered banks' posted rate. The two need not be identical, and the figure on your agreement is the one that counts, and the spread should be confirmed in writing because it is the part you can negotiate. If the draw is meant to pay off cards, the comparison to work next is in the debt consolidation cost guide, and the mortgage that sits ahead of the line is covered in the Canadian mortgage guide.
Sources
- Financial Consumer Agency of Canada, Home equity line of credit (interest on amounts borrowed, prime plus example, minimum payments, 65% limit, equity requirements, stress test, costs, risks, lender notice of rate changes): https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html (checked October 23, 2026)
- Bank of Canada, posted interest rates offered by chartered banks (prime rate of 4.45% at October 21, 2026): https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/ (checked October 23, 2026)
- Bank of Canada, key interest rate (2.25% at September 2, 2026; cut of 0.25 points on October 29, 2025): https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/ (checked October 23, 2026)
- OSFI, Guideline B-20, Residential Mortgage Underwriting Practices and Procedures (non-amortizing HELOC component limited to 65% LTV; credit above 65% should be amortized): https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures (checked October 23, 2026)
- Day count, monthly posting and monthly compounding are modelling assumptions, not terms published by the FCAC. The 80% total is B-20's definition of a conventional mortgage, not a stated HELOC limit.