What actually changes
A HELOC turns home equity into money you can spend, but every dollar drawn is a debt with interest owed each month. If only the interest is paid, the balance stays the same for as long as you carry it.
That payment then becomes part of what your retirement income has to cover, and because most HELOC rates are variable, it can rise when rates do.
What the rules say
- How much: a HELOC can be up to 65% of your home's value. Combined with a mortgage, you need at least 20% equity in the home.
- The rate: most HELOCs have a variable interest rate, so the payment moves when rates move.
- Payments: the lender may require interest only, or interest plus part of the principal.
- The risk the regulator names: your home is the collateral, and if a HELOC is not paid back, you could lose your home.
- Tax: interest on borrowed money is generally deductible only when the money is used to earn income from a business or property. Interest on money borrowed for living costs is not deductible.
What people in this situation weigh
- A short bridge: covering a few years, for example until the Canada Pension Plan (CPP) or a workplace pension starts, then paying it down.
- Emergency backup: an open line set up while still working and used only if needed.
- A reverse mortgage instead: usually available from age 55, up to 55% of the home's value. There are no regular payments, but interest is added to the balance so the debt grows, and rates are usually higher than a mortgage or HELOC. It is repaid when you sell, move out or the last borrower dies.
- Downsizing: releases equity with no debt at all, at the cost of moving.
A worked example
Frank and Joy draw $100,000 on a HELOC at an example rate of 6%. Interest-only payments are $500 a month, and after ten years they still owe $100,000. If rates rise to 8%, the payment becomes about $667. By comparison, a $100,000 reverse mortgage at an example rate of 6.5% needs no payments, but the balance grows to roughly $260,000 after 15 years, all of it coming out of what they leave behind.
Interest-only arithmetic for the HELOC; the reverse mortgage uses semi-annual compounding. The rates are illustrative only, not current market rates.
How TruePath fits in
TruePath tracks a HELOC as a debt with its rate and payment, so the payment counts against your retirement income and the balance counts against your net worth. It does not treat a HELOC as a source of retirement income. What if...? can model a reverse mortgage, including the cash it provides and the compounding loan that reduces the estate over time.
Related questions people ask
How much can I borrow with a HELOC?
Up to 65% of your home's value. Combined with a mortgage, total borrowing still has to leave at least 20% equity in the home.
Is HELOC interest tax-deductible in retirement?
Only when the borrowed money is used to earn income, such as investing in a non-registered account. Money spent on living costs does not qualify.
What is the difference between a HELOC and a reverse mortgage?
A HELOC needs monthly payments and usually has a variable rate. A reverse mortgage needs no regular payments, but interest is added to the balance, so the debt grows until the home is sold, you move out or the last borrower dies.
Does a reverse mortgage affect my OAS?
No. The Financial Consumer Agency of Canada says money from a reverse mortgage does not affect Old Age Security (OAS) or the Guaranteed Income Supplement (GIS), and it is not taxable.
Sources
- Canada.ca: Home equity line of credit (Financial Consumer Agency of Canada)
- Canada.ca: Reverse mortgages (Financial Consumer Agency of Canada)
- Canada.ca: Income Tax Folio S3-F6-C1, Interest Deductibility
- Office of the Superintendent of Financial Institutions: Guideline B-20 and home equity lines of credit
This page is general education about Canadian retirement rules, not personalised financial advice. Figures are for the 2026 tax year and change with government updates.