How to Use a HELOC or Equity from Your Primary Residence to Buy a Cottage
For many Canadians, the dream of owning a cottage or second home is more attainable than it seems—especially if you've built up equity in your primary residence. Rather than saving for years or relying entirely on a traditional mortgage, homeowners are increasingly turning to home equity lines of credit (HELOCs) or refinancing their current property to unlock capital and finance a cottage purchase.
This strategy can be incredibly effective—but it comes with important risks, rules, and lender requirements you need to understand. In this guide, we’ll explore how to use the equity in your home to buy a cottage, how lenders view this type of financing, and the pros and cons of using a HELOC versus refinancing.
What Is a HELOC?
A HELOC (Home Equity Line of Credit) is a revolving credit line secured against the equity in your home. It functions much like a credit card:
You can borrow money, repay it, and borrow again as needed.
You only pay interest on what you actually borrow.
It’s typically offered at a variable interest rate.
Most major Canadian banks offer HELOCs to qualified homeowners with at least 20% equity in their homes. The borrowing limit is based on your available equity and your creditworthiness.
Refinancing vs. HELOC: What’s the Difference?
When using home equity to fund a cottage purchase, you generally have two main options:
1. HELOC (Home Equity Line of Credit)
Flexible, revolving credit
Can be used gradually or all at once
Interest-only payments required (for a time)
Typically has a variable rate
2. Mortgage Refinance
You replace your current mortgage with a new, larger one
You receive the difference in cash (a “cash-out refinance”)
Can come with a fixed or variable rate
Structured like a traditional mortgage—with principal and interest payments
Which option is better depends on your financial goals, risk tolerance, and whether you want structured payments or flexible access.
Step-by-Step: Using Equity to Buy a Cottage
Let’s walk through how a homeowner in Ontario (or elsewhere in Canada) might use their home equity to buy a cottage.
Step 1: Calculate Your Home Equity
Home equity is the current market value of your home minus what you owe on your mortgage.
Example:
Home market value: $850,000
Remaining mortgage: $400,000
Available equity: $450,000
Most lenders will allow you to borrow up to 80% of your home’s appraised value, including your current mortgage.
Max borrowing = 80% of $850,000 = $680,000
Available HELOC room = $680,000 - $400,000 = $280,000
This $280,000 can be used as a down payment—or even buy a cottage outright, depending on the price.
Step 2: Choose a Financing Strategy
You can now choose between:
Opening a HELOC to tap into that $280,000 when needed
Refinancing your mortgage to extract a lump sum (say $200,000) to put toward the cottage
If the cottage is a small seasonal property or water-access-only, many buyers opt for a HELOC + smaller cottage mortgage combo, which gives more flexibility.
Step 3: Use Funds Toward the Cottage
You can use the HELOC or refinance proceeds in a few different ways:
Full purchase (if the cottage is under $300,000 and you qualify)
Down payment on a cottage mortgage
Bridge financing while waiting for cottage mortgage approval
Renovations or upgrades once you own the cottage
Some buyers also use HELOCs for the initial deposit when submitting an offer.
Key Benefits of Using Equity for a Cottage Purchase
✅ No Need for Separate Financing (Sometimes)
If the cottage is inexpensive enough, your HELOC or refinance funds might allow you to buy it outright, avoiding the red tape of a second mortgage.
✅ Faster Access to Capital
A HELOC can be pre-approved and ready to draw from—ideal in hot cottage markets where you need to move fast.
✅ Competitive Interest Rates
Secured credit from home equity usually carries lower interest rates than personal loans or unsecured borrowing.
✅ Preserves Your Investment Strategy
You don’t have to liquidate investments or RRSPs to fund the purchase, which may save you taxes and preserve long-term growth.
Downsides and Risks
While using home equity is a popular financing strategy, it’s not without pitfalls:
⚠️ Your Home Is on the Line
Whether through a HELOC or refinance, your primary residence is collateral. If you fail to repay, you risk foreclosure.
⚠️ Variable Interest Rates
Most HELOCs have variable rates. If interest rates rise (as they have in recent years), your payments can increase substantially.
⚠️ Overleveraging Risk
Borrowing too much against your home and adding another property can stretch your finances thin—especially if the cottage needs work or has seasonal income uncertainty.
⚠️ Lender Restrictions
Some lenders may not allow HELOC proceeds to be used as down payments for certain types of cottages (e.g., seasonal, water-access-only, uninsurable).
What Do Lenders Look For?
When applying for a HELOC or refinancing for a cottage purchase, lenders will typically assess:
Your credit score (ideally 680+)
Income stability
Debt-to-income ratio
Current mortgage payment history
Appraised value of your home
Use of funds (some lenders may ask how you plan to use the borrowed funds)
If you’re using the funds for a second property, it helps to have a clear plan and justification—especially if you intend to rent it out.
Can You Combine HELOC Funds with a Cottage Mortgage?
Absolutely. In fact, this is a common strategy:
Use the HELOC as a down payment (say 20%)
Apply for a mortgage on the cottage for the remaining 80%
The key is that the lender of the cottage mortgage must allow borrowed down payments. Not all do—especially for Type B or seasonal cottages.
Mortgage brokers can help match you with lenders who accept this strategy.
Cottage Mortgage + HELOC Case Example
Scenario:
You own a home in Kitchener worth $900,000, with $350,000 remaining on the mortgage.
You want to buy a $400,000 cottage in Haliburton.
You refinance your home and pull $250,000 in equity.
You use $100,000 as the down payment for the cottage.
You take out a mortgage for the remaining $300,000 on the cottage.
This lets you enter the cottage market without dipping into savings or selling assets.
Get Professional Advice
Hello, I’m David Pipe. At WealthTrack, we can help you reach your financial goals — book a free 15-minute call with us today to find out how to get started.
Final Thoughts
Using the equity in your primary residence—whether through a HELOC or refinancing—is one of the most powerful tools Canadians have to buy a cottage. It can fast-track your dream of owning a second home while leveraging your existing investment.
But it’s not a decision to make lightly. You’re increasing your total debt and putting your home on the line. Make sure you:
Understand the repayment structure
Run the numbers (especially with rising interest rates)
Know the risks of borrowing for seasonal or remote properties
Work with a mortgage broker familiar with cottage financing rules
With proper planning, tapping into your home equity can be a smart, flexible way to afford a slice of Ontario’s cottage country—and enjoy both lifestyle and long-term appreciation.
