What are the risks of interest-only HELOC payments?

In Canada, interest-only HELOC payments keep your monthly cost low, but they never reduce what you owe, so the debt can stay with you for decades. HELOC rates usually move with prime, so the payment rises whenever rates rise. The lender can also generally review the line's terms.

Why interest-only is tempting

Many home equity lines of credit (HELOCs) require only the monthly interest. Interest-only flexibility helps in a tight month, during a renovation, or when a business has uneven income.

The risk of interest-only payments is that the minimum becomes the habit. On a mortgage, each payment includes some principal, so the balance shrinks on a schedule. On an interest-only HELOC, the balance stays exactly where it is until you choose to pay it down.

A worked example of interest-only payments

These figures use illustrative rates, not quotes.

You draw $100,000 on a HELOC at an illustrative 7%. The interest-only payment is about $583 a month. After 10 years of paying that, you have paid about $70,000 in interest and still owe $100,000.

If the rate rose to an illustrative 8%, the interest-only payment would rise to about $667 a month, with the balance still unchanged.

If instead you paid the same $100,000 off over 10 years at an illustrative 7%, the payment would be higher, but the debt would be gone at the end.

The main risks of interest-only payments

• The balance never falls unless you choose to repay it.
• Rising rates: the payment usually follows prime, so your cost can rise with no change on your side.
• The lender's terms: HELOC agreements generally let the lender review the line, and a lender can reduce or freeze unused room. Read that section of your agreement.
• Your home is the security. If you cannot pay, the lender can act against the property.
• Less flexibility later: a large outstanding HELOC can count against you when you apply for other credit or refinance.

OSFI's rules for federally regulated lenders cap the revolving, non-amortizing part of a HELOC at 65% of your home's value, and anything above that, up to 80% in total, must amortize (sources: OSFI and the Financial Consumer Agency of Canada, checked October 2026). Lenders also qualify you under the stress test, at the greater of your contract rate plus 2 percentage points, or 5.25%.

The OSFI limits and the stress test protect the lender's position, not your budget. A plan to repay is still up to you.

Habits that keep a HELOC under control

1. A repayment schedule of your own, paying more than the interest each month.
2. Borrowing for a purpose, not as an extension of your chequing account.
3. Moving a large balance onto an amortizing portion, if your lender allows it, so the balance pays down automatically.
4. A review of the balance at each mortgage renewal, to decide whether to roll it into a refinance.

What to do next

If your HELOC balance has not moved in years, use our call-me-back form and we will look at ways to pay it down. You can also compare options with the debt consolidation tool.