Can I Use a HELOC to Pay Off My Mortgage Faster?

Paying off your mortgage early sounds amazing, right? Who wouldn’t want to get rid of that monthly payment and save on all that interest? It’s a great goal, and it’s no surprise people come up with all kinds of creative ways to make it happen. One popular idea you might have heard of involves using a home equity line of credit (HELOC) to pay your mortgage faster.

On paper, it sounds smart; you borrow from equity built into your home to make extra payments. In reality, though, it’s not always as smooth as it looks. HELOCs usually have variable interest rates, so your costs could jump unexpectedly. Plus, borrowing against your home’s equity can get risky if life throws you a curveball, like a job loss or emergency expense.

When it comes to paying off your mortgage, the simplest methods often work best, such as making extra payments when you can or refinancing to a shorter term.

This blog explains the concept of a HELOC, its pros and cons, and if it’s your best option to pay off a mortgage in 2025.

What is a HELOC?

A HELOC is a revolving line of credit that is secured against the equity you’ve built up in your home. The HELOC comes with an adjustable interest rate that will go up and down with the markets.

The Bank of Canada has been raising its key lending rate and has said it has no plans to change that strategy. This means borrowing money is becoming increasingly expensive.

Like any line of credit, the HELOC is deposited into an account, and you can take out as much or as little as you like, whenever you want. There are no fixed repayment amounts; lenders only require you to make monthly interest payments on the equity you’ve accessed.

The Pros and Cons of a Home Equity Line of Credit (HELOC)

A HELOC is usually touted as a financial lifesaver, but like most things in life, it has its upsides and downsides. Let’s break it down without any jargon—just facts.

The Pros

• Flexible access to funds: Think of it as a credit card, but with a much lower interest rate. You can borrow only what you need, when you need it, instead of taking a lump sum.
• Lower interest rates: Compared to credit cards or personal loans, HELOCs usually come with more manageable interest rates, which means you save money over time.
• Potential tax benefits: In some cases, you might be able to deduct the interest on your HELOC when you file your taxes.
• You can use it for anything: While it’s best for home improvements, you can technically use it for anything, including education, emergencies, or even consolidating higher-interest debt.

The Cons

• Your home is on the line: Missing payments could put your house at risk, which isn’t exactly without stress.

• Variable interest rates: While rates can start low, they can increase, making your payment unpredictable.

• Temptation to overspend: Easy access to funds can make it tempting to borrow more than you actually need.
• Fees and costs: Setting up a HELOC isn’t free; there might be appraisal fees, annual fees, or even penalties if you close early. 

How much equity do you need to qualify for a HELOC?

So, how much equity do you need to obtain a HELOC? Most lenders want you to have at least 20% equity in your home; that is the part you fully own, not the bank. 

For example, if your home is worth $500,000, you will still need at least $100,000 in equity.

However, there is more to it! Your credit profile also matters. A solid credit score shows lenders that you are reliable, which can improve your chances of approval and help you get better terms.

The Financial Advantages of Leveraging HELOCs

For starters, the interest on your HELOC might be tax-deductible if you use it for home improvements; however, always check with a tax expert.

Additionally, it is a cost-effective way to fund big projects like upgrading your kitchen or even exploring investment opportunities. Since HELOCs usually have lower interest rates than credit cards or personal loans, you can save money while making your plans a reality.

Is a HELOC your best option for paying off a mortgage?

The short answer to this question is no. Technically, you can use the money in your HELOC for anything: renovations, vacations, cars, tuition, etc. Still, using a HELOC to pay down your mortgage isn’t a sound financial idea.

According to one strategy, you can use your HELOC to pay off your mortgage in just a few years, but it’s not as simple as it sounds. There are also some doubts as to whether it really works or not.

As we all know, life rarely goes according to plan 100% of the time. Using a HELOC to pay down your mortgage could get easily derailed if you’re hit with an unexpected expense, or financial stress, like the loss of a job or reduction in pay.

A HELOC comes with a variable interest rate, meaning it fluctuates. At the same time, the vast majority of Canadian homeowners have a mortgage with a fixed rate. With the above strategy, you exchange a fixed mortgage rate with a variable HELOC rate. Variable interest rates are on the rise and are expected to make significant jumps over the coming years.

Balancing a HELOC, managing your spending, and dealing with interest payments can be difficult for even the most disciplined person. People refinance with a HELOC or home equity loan (second mortgage) to simplify their lives, not make them more confusing and susceptible to financial hardships.

Better Ways to Pay Off Your Mortgage Early

Paying off your mortgage early doesn’t have to be complicated. In the following, we have curated some of the best ways to get started and save a lot of money in interest and years of payments.

Pay More Than the Monthly Minimum Payment

Paying more than the scheduled minimum each month greatly reduces the time it takes to pay down a mortgage. Depending on the lender, you should have several repayment options. Reducing the principal helps decrease interest payments, which can save you tens of thousands of dollars in interest payments over the life of the mortgage.

Make at Least One Extra Payment Annually

An alternative to making higher payments is to make at least one extra mortgage payment each year. If you have a 30-year mortgage and make just one extra annual payment, you’ll slash the mortgage down to 26 years.

Refinance to Reduce Interest

Lower interest rates are the most popular reason to refinance a mortgage. More of a mortgage payment goes toward the principal, which means it gets paid off faster, with less going to interest payments. Having a lower monthly mortgage payment can also help free up money that can be used for day-to-day expenses.

Canadalend: Helping You Pay Down Your Mortgage Quickly

If you’re considering refinancing a mortgage or taking out a HELOC or home equity loan, the licensed mortgage specialists at Canadalend can help you find the best financial product with the best terms and rates.

Why should you choose Canadalend over the country’s big banks and other private lenders? The mortgage experts at Canadalend are independent, which means they’re looking after your best interest. Traditional lenders will only push their own products and services, even if it’s not in your best interest.

The independent mortgage professionals at Canadalend have access to hundreds of different lenders. Many specialize in helping homeowners with bad credit, no credit, or unreliable incomes refinance their mortgages.

To find out what mortgage or refinancing options are available to you, contact Canadalend today or apply online. A Canadalend mortgage specialist will then set up an appointment with you as soon as possible. Call 1-844-586-0710 or contact us here.