If you're a homeowner in the Greater Toronto Area, you've seen the headlines. After years of unprecedented growth, the real estate market in August 2025 is showing signs of fluctuation. Prices in some neighbourhoods are cooling, and talk of "market corrections" is everywhere. For the many homeowners who have come to rely on a Home Equity Line of Credit (HELOC) for financial flexibility, this volatility can spark a single, anxious question:

"If my home's value drops, what happens to my HELOC? Can the bank demand I pay it back?"

This is a critical question that deserves a clear, calm answer. As mortgage brokers, we help clients navigate these concerns every day. The good news is that for most responsible borrowers, a market dip is not a cause for panic. However, it's crucial to understand the real risks and how your lender is likely to react. This guide will demystify what happens to your HELOC in a fluctuating market and provide a broker's advice for navigating it with confidence.

The Foundation: LTV and Your HELOC Limit

To understand how your HELOC can be affected, you first need to understand the single most important metric a lender uses: Loan-to-Value (LTV).

What is Loan-to-Value (LTV)?

LTV is a simple percentage that represents how much you owe on your property compared to its current market value. The formula is:

(Total Mortgage Debt + HELOC Balance) ÷ Current Home Value = LTV

Lenders use LTV to measure their risk. A lower LTV means you have more equity in your home, which makes you a lower-risk borrower.

How Your HELOC Limit Was Calculated

When you first applied for your HELOC, the lender based your limit on this LTV calculation. In Canada, lenders will typically allow you to borrow a combined total (mortgage + HELOC) of up to 80% of your home's appraised value.

Here’s how the math worked:

Let's say your home was appraised at $1,000,000.

Your maximum allowable debt (80% LTV) would be $800,000.

If you had an outstanding mortgage balance of $400,000, your maximum available HELOC limit would be $400,000 ($800,000 - $400,000).

"Paper" Equity vs. Real Equity

It's important to remember that this initial HELOC limit was based on the appraised value of your home at that specific time. If the market was at its peak when you applied, your borrowing limit was based on that peak "paper" equity, which may not reflect today's market conditions.

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Scenario 1: Your Home's Value Drops

This is the scenario that causes the most anxiety for homeowners. What happens if the value of your $1M home dips to $900,000?

The Biggest Fear: Will the Bank Call My Loan?

Let's address the biggest fear first. In almost all cases, for a standard HELOC where you are making your payments on time and are in good standing, a bank will not "call the loan" and demand you pay back the balance immediately just because of a general market downturn. This is a very rare event, typically reserved for situations where the borrower has defaulted on payments or violated the terms of their agreement.

The Real Risk: A "Frozen" or Reduced Limit

The most common and realistic danger is that the lender may freeze your access to any remaining unused credit, or in some cases, reduce your overall credit limit.

Lenders might have the right, as per your HELOC agreement, to re-evaluate your property's value from time to time to ensure your LTV is still within their 80% policy. If a new appraisal shows that your total debt now exceeds 80% of the new, lower home value, they will take action to reduce their risk.

A Real-World Example

Let's look at the Chan family in Vaughan.

In 2023: They bought their home for $1.2M and were approved for a $300,000 HELOC. Their mortgage balance is $700,000.

In 2024: They used $100,000 of their HELOC for a major kitchen renovation. Their total debt is now $800,000 ($700k mortgage + $100k HELOC). Their LTV was a healthy 67%.

Today (August 2025): The market has cooled, and a new assessment values their home at $1.05M.

The bank's maximum allowable debt on this property (80% LTV) is now only $840,000 ($1.05M x 0.80). The Chans already owe $800,000. This means their total available credit from equity is now just $40,000. Even though their original HELOC limit was $300,000, the bank might formally reduce their limit down to $140,000 ($840k max debt - $700k mortgage) to align with the new LTV. The remaining portion of their original unused credit would now be frozen.

Who is Most at Risk?

Homeowners who have borrowed close to their maximum 80% LTV are the most exposed. If you have a high-ratio mortgage and a large HELOC balance, a small dip in your home's value can quickly push your LTV over the 80% threshold, triggering a review from your lender.

Scenario 2: Your Home's Value Increases

What about the opposite scenario? If the market rebounds and your home's value goes up, does your HELOC limit automatically increase with it?

Does My HELOC Limit Automatically Go Up?

Unfortunately, no. The credit limit you were approved for when you opened the HELOC stays the same, regardless of how much your home appreciates. The bank won't automatically grant you access to your newfound equity.

How to Access Your New Equity

To get a higher HELOC limit, you must formally apply for a limit increase. This is treated as a new application. It will trigger:

A new home appraisal to confirm the increased value.

A fresh review of your income to ensure you can service a higher debt load.

A new credit check.

As brokers, this is a very common service we provide. We can manage the application process to help you access your home's increased equity when the time is right.

A Broker's Strategy for a Volatile Market

Navigating a fluctuating market requires a proactive, not reactive, approach. Here is the advice we give our clients.

Conduct a Proactive "HELOC Health Check"

Don't wait for a letter from the bank. If you're concerned about your home's value, let's conduct a "HELOC health check." We can review your specific HELOC's terms and conditions (the fine print), help you estimate your home's current market value, and calculate your current LTV. This will give you a clear picture of your risk level and allow you to make informed decisions.

Securing Funds Before You Need Them

If you are planning a large, near-future expense—like a major renovation starting in the fall or a university tuition payment due in January—it may be wise to secure those funds from your HELOC now. By moving the funds from your HELOC to your bank account, you ensure you have the cash you need, eliminating the risk that the lender could freeze or reduce your available credit before you get a chance to use it.

The Option to "Fix" a Portion of Your Balance

Many modern HELOCs allow you to lock in a portion (or all) of your outstanding balance at a fixed interest rate for a set term (e.g., 1, 3, or 5 years). This is a powerful strategy in a volatile market. It not only protects you from rising interest rates tied to the prime rate, but it also turns that portion of your HELOC into a stable installment loan, which is often viewed more favourably by lenders.

Refinancing as an Alternative

If your primary need is a large, lump sum of cash and you don't need the ongoing flexibility of a revolving credit line, a traditional mortgage refinance might be a viable option. A refinance allows you to lock in the funds you need at a fixed interest rate with a stable, predictable payment. This completely insulates you from any future market fluctuations or prime rate changes.

You Are Most Likely Okay

A HELOC is one of the most powerful financial tools a homeowner can possess. However, in a fluctuating real estate market, it's crucial to be aware of the risks. While the catastrophic "loan called" scenario is extremely rare for responsible borrowers, the real risk of a frozen or reduced credit limit is something every homeowner should understand.

The key to financial peace of mind is to be proactive. Understanding the terms of your product and having an expert on your side to help you navigate your options is the best way to protect your access to your hard-earned equity.

If you're concerned about your HELOC in today's market, contact our brokerage for a complimentary "HELOC health check." We’ll help you assess your situation and build a strategy to ensure your financial plans remain secure.

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