The short answer
If you have built up equity in your house, it is often the biggest source of cash for a cottage. You can tap it with a home equity line of credit (HELOC), a refinance, or a second mortgage. Then you either use that money as the down payment and get a cottage mortgage for the rest, or pay for the whole cottage with it. Each path has a different cost and a different risk.
How much equity you can actually use
Federal rules for federally regulated lenders set two limits on borrowing against your home:
- 80% of your home's value is the most you can borrow in total, including your existing mortgage.
- 65% of your home's value is the most that can sit in a revolving line of credit, the kind you can draw, repay and draw again. Borrowing between 65% and 80% has to be a regular mortgage that pays down over time.
Lenders set up combined plans in slightly different ways, so treat this as a guide. Here is how it often works out:
| Step | Amount |
|---|---|
| 80% of value (total borrowing limit) | $800,000 |
| Less existing mortgage | $350,000 |
| Equity you could access | $450,000 |
| Of that, up to the 65% line ($650,000 total) | $300,000 as a flexible line |
| From 65% to 80% | $150,000 as a paydown mortgage |
Try it with your own numbers:
Option 1: HELOC for the down payment, cottage mortgage for the rest
You draw the down payment from a HELOC on your house and put a mortgage on the cottage for the balance. Each property carries its own debt, the cottage mortgage has a fixed paydown schedule, and you keep the rest of your line available. If you buy a year-round cottage with less than 20% down, check the insurer's rules on borrowed down payments first. For a seasonal cottage, Sagen specifically lists equity in an existing home as an acceptable own-resources source.
The catch: you now carry two payments plus the HELOC interest, and all of it counts against your income when you qualify.
Option 2: Pay for the whole cottage with equity
If you have enough equity, you can buy the cottage outright with a HELOC or refinance and skip a cottage mortgage entirely. It makes an awkward property simple: water access, seasonal road or unusual setup, the lender only cares about your house.
- Pro: no cottage appraisal or property rules, a cleaner offer and a quick close.
- Pro: you can pay down a HELOC as fast as you like.
- Con: your principal home secures the whole cottage. If things go wrong, it is your house at risk.
- Con: HELOC rates are variable and interest-only payments can drag on for years if you do not set a plan.
Talk to Jeff and Emily
Not sure whether to borrow against your house or the cottage? We can model both with your real numbers.
Or call or text 416-628-9682
Refinance vs HELOC vs second mortgage
| HELOC | Refinance | Second mortgage | |
|---|---|---|---|
| How it works | Revolving line, draw as needed | Replace your mortgage with a bigger one | A new loan behind your existing mortgage |
| Limit | Up to 65% of value as a line | Up to 80% of value total | Varies, often alternative or private lenders |
| Rate | Usually variable | Fixed or variable | Usually higher |
| Payments | Often interest only | Principal and interest | Varies |
| Best when | You want flexibility and plan to repay | You are near renewal or want a fixed paydown | Your current mortgage has a big penalty to break |
| Watch for | Discipline, rate changes | Penalty to break your current mortgage | Cost, fees and short terms |
Insured refinances are not available for a cottage purchase. The 2025 insured refinance program for secondary suites only covers adding a rental unit to your home, and those units cannot be short-term rentals, so it is not a cottage equity tool.
HELOC interest and tax on a cottage
Usually not when the cottage is for personal use. In Canada, interest is generally only deductible when borrowed money is used to earn income. If you rent the cottage out, part of the interest may be deductible against that rental income, but personal-use periods limit what you can claim and the rules are detailed. Please speak with an accountant before you set up the borrowing, because how you draw and use the money matters.
Set a payback plan for the line
A HELOC only asks for interest each month, which makes the cottage feel cheaper than it is. We suggest setting an automatic monthly payment on the line as if it were a mortgage, sized to clear it over a period you choose. Then a rate rise or a big repair at the lake does not leave you with a growing balance against your house.
Questions we ask before recommending a setup
- When does your current mortgage renew, and what would it cost to break it?
- Is the cottage year-round, seasonal or water access?
- Will you rent it out at all? See renting out your cottage.
- How fast do you want to be debt-free on the cottage?
- How comfortable are you with your home securing the cottage?
There is no single right answer. For many families, a modest HELOC draw for the down payment plus a cottage mortgage on the cottage hits the balance of cost, flexibility and risk. Check your total with the cottage affordability calculator.
Questions people ask
Can I use my HELOC to buy a cottage?
How much equity can I take out of my house to buy a cottage?
Is it better to refinance or use a HELOC for a cottage?
Can I use a HELOC for the cottage down payment and mortgage the rest?
Is HELOC interest tax deductible if I buy a cottage?
Can I get a second mortgage to buy a cottage?
Sources
- OSFI: Guideline B-20 advisory (80% LTV limit, 65% HELOC limit) (checked 2026-10-12)
- OSFI: Loan-to-income limits for uninsured mortgage portfolios (checked 2026-10-12)
- Sagen: Vacation/Secondary Homes program (checked 2026-10-12)
- Department of Finance Canada: insured refinancing for secondary suites (checked 2026-10-12)