Should I Move My Mortgage Into a HELOC to Lower Payments?
Moving your mortgage balance into a HELOC lowers your required monthly payment — because most HELOCs only require interest-only minimum payments. But the principal never shrinks, the rate is variable (prime + margin), and regrouping everything into one amortizing facility means re-qualifying under the stress test plus discharge, legal, and appraisal fees. As a permanent strategy it is a trap; as a temporary bridge it can work.
Why the payment drops
A HELOC is a revolving line of credit secured against your home, priced at a variable rate (prime plus a lender margin). The required minimum payment is typically interest only. On a large balance, that minimum can be dramatically lower than an amortizing mortgage payment — not because the debt got cheaper, but because you stopped repaying principal.
Example in principle: a $500,000 balance at a given rate costs much less per month interest-only than amortized over 25 years. The difference is exactly the principal repayment you are no longer making. Every month you pay interest-only, your balance stays at $500,000.
The three costs nobody advertises
- The principal never shrinks. Interest-only minimums mean you are renting your debt. Over years, you pay interest on the full balance indefinitely, and your equity grows only through home-price appreciation — which is not guaranteed.
- The rate is variable and typically higher than a mortgage rate. HELOCs are priced at prime + margin, and the margin is usually above what you'd get on a variable-rate mortgage. If prime rises, your payment rises with zero warning — there is no fixed-payment option to hide behind.
- Revolving credit is spendable. A HELOC you can draw on is a HELOC you will draw on. Studies of borrower behaviour consistently show balances creeping back up after consolidation. The tool that was supposed to reduce your debt becomes the tool that grows it.
What "regrouping" actually involves
If instead you consolidate the mortgage and HELOC into a single amortizing facility — the responsible version of this move — expect:
- Re-qualification under the stress test at MAX(contract rate + 2%, 5.25%). Consolidation counts as a refinance, so the B-20 qualifying rate applies even if your original mortgage predates it.
- Discharge fees on the existing mortgage, legal fees for registering the new charge, and usually a new appraisal — typically $1,500–$3,000 all-in, varying by province and lender.
- Potential prepayment penalties if you break a fixed term early to consolidate — IRD penalties on large balances can dwarf the fee savings.
Run the full cost including penalties and fees before assuming consolidation saves money. It often doesn't in the first two years.
The honest verdict
Use interest-only HELOC payments as a temporary bridge only — during a job loss, a parental leave, or a short cash-flow crunch — with a written plan and date for returning to principal payments. Keep paying principal whenever you can, even if the minimum doesn't require it: every extra dollar goes straight against the balance on a revolving facility, with no prepayment penalty.
Do not move your mortgage into a HELOC as a permanent "lower payment" strategy. You are converting amortizing debt that ends into revolving debt that doesn't, at a variable rate, with the balance available to re-borrow. That is not a lower payment — it is a longer sentence.
Frequently asked questions
Can I make principal payments on a HELOC?
Yes — and you should. HELOCs are revolving: any payment above the interest-only minimum reduces the balance directly, with no prepayment penalty. The trap is that nothing forces you to, so most borrowers don't.
Is the interest on a HELOC tax-deductible?
Only if the borrowed money is used to earn income from a business or investment (the Smith Manoeuvre logic). Interest on money borrowed for personal use — including your principal residence — is not deductible. The CRA looks at the use of the funds, not the security behind the loan.
What happens to my HELOC if home prices fall?
Your lender can reduce your credit limit or demand repayment if the loan-to-value breaches the revolving-portion cap (65% of the property value for the revolving portion under federal rules). In a falling market, the "available credit" you were counting on can shrink or disappear.
Should I consolidate my HELOC into my mortgage at renewal instead?
Often yes — renewal is the cheapest time to do it. No prepayment penalty at term end, one amortization schedule, one fixed or variable rate, and principal repayment resumes automatically. You still re-qualify under the stress test if you change lenders or increase the balance, but a straight renewal consolidation with your current lender avoids the worst of the friction.
Mortgage Relief Calculator 2026 — CA$29
Compare the three paths — status quo, HELOC interest-only, regroup + extend — in the Mortgage Relief Calculator 2026.
Sources
- Financial Consumer Agency of Canada, Preparing for a mortgage — HELOC rules, qualifying requirements, and refinancing: https://www.canada.ca/en/financial-consumer-agency/services/mortgages/preparing-mortgage.html
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