Yes, in specific circumstances. Some lenders and mortgage default insurers will accept a HELOC (home equity line of credit) or another borrowed source for part or all of your down payment, but the rules are stricter than for a down payment funded by savings or a gift, and the cost is higher.
Pekoe Mortgages is a licensed brokerage serving Ontario and Alberta, holding FSRA Licence #13321 in Ontario and licensed by RECA in Alberta. We work through borrowed down payment scenarios with buyers and repeat homeowners regularly, and we will tell you plainly whether it fits your file before you commit to it.
Can You Use a HELOC or Borrowed Money for a Down Payment in Canada?
Yes. There are two distinct paths, and lenders treat them differently. The first is drawing a HELOC secured against a home you already own to fund the down payment on a new purchase. The second is a dedicated borrowed down payment programme offered by a default insurer, which accepts unsecured borrowed funds even if you have no home equity at all.
Both paths are legitimate when disclosed properly. What is never acceptable is presenting borrowed money as if it were your own savings. Lying about the source of a down payment is mortgage fraud, and it puts your entire approval at risk.
| Path | How It Works | Who Qualifies |
|---|---|---|
| HELOC on a home you already own | You draw equity from your current property’s HELOC and use the cash as a down payment on the new purchase. | Existing homeowners with enough equity elsewhere; you carry both debts until the HELOC is repaid or the other property sells. |
| Borrowed down payment insurance programme | An arm’s-length lender (personal loan, unsecured line of credit) funds part or all of the down payment; a default insurer underwrites the file under a specific programme built for this. | Buyers with strong credit and stable income but little or no home equity of their own; property and programme conditions apply and vary by insurer. |
The direct answer is that borrowed down payments are allowed under defined conditions, not as a general workaround to the minimum down payment rules.
Path One: Drawing a HELOC Against a Home You Already Own
Repeat buyers and investors commonly use this path. If you already own a property with equity in it, a HELOC lets you pull cash out and use it as a down payment on a second home, a rental, or a move-up purchase, without selling anything first.
The lender financing your new purchase will ask for the source of your down payment and will see the HELOC draw on your statements. That is fine, but the HELOC’s monthly carrying cost gets added to your debts when the new lender calculates your qualifying ratios. You are effectively qualifying to carry two properties’ worth of payments at once, even if you plan to sell the first one soon.
This path works best when your existing equity is real and your income comfortably supports both payments during the overlap. It is a financing structure, not a discount, and the interest on the HELOC draw is a real ongoing cost until it is paid down.
Path Two: Borrowed Down Payment Programmes With No Home Equity Needed
Two Canadian default insurers run dedicated programmes for exactly this situation. Sagen’s Borrowed Down Payment programme and Canada Guaranty’s Flex 95 Advantage both accept down payment funds sourced from an arm’s-length personal loan, an unsecured line of credit, or similar borrowed sources, provided the file otherwise qualifies as an insured mortgage.
These programmes exist because not every strong borrower has years of savings or a family member able to gift funds. They are underwritten more strictly on credit history and income stability than a traditional insured file, because the insurer is taking on a borrower with zero equity contribution from personal net worth.
Not every lender offers these programmes, and the exact credit-score and property-value conditions vary by lender and insurer. Confirm current eligibility with your broker or lender directly rather than assuming your file qualifies. A borrowed down payment is possible without home equity, but only through a specific insurer programme, not as a default option on every insured mortgage.
The “Own Funds” Rule on a Standard Insured or Conventional Mortgage
Outside of a dedicated borrowed down payment programme, most insured and conventional mortgages still expect your down payment, or at least a meaningful share of it, to be traceable to your own resources: savings, investments, RRSP withdrawals under the Home Buyers’ Plan, or a documented gift from an immediate family member. If a family member is helping instead of a lender, our guide to gifted down payment rules in Canada covers what a lender expects to see.
The specific own-funds minimum, and which sources satisfy it, varies by lender and insurer. Some will accept borrowed funds informally if your ratios support it and the loan is disclosed; others will decline the file outright unless it fits one of the named programmes above. Do not assume your bank’s rule applies at every lender.
This is a different question from the deposit you put down with your purchase offer, which is a separate, earlier payment. Our breakdown of the difference between a deposit and a down payment explains how the two connect at closing. Confirm the specific own-funds expectation with your lender before you count on borrowed money covering all of it.
Why Borrowed Money Costs More
A borrowed down payment increases your mortgage default insurance premium, and you also pay interest on the borrowed amount itself. Both costs stack on top of the mortgage you are already financing.
On an insured mortgage with a loan-to-value between 90.01% and 95%, CMHC’s standard premium is 4.00% of the loan amount when the down payment comes from savings, an RRSP withdrawal, a gift, or sale proceeds. When the down payment is borrowed through an unsecured loan, line of credit, or credit card, the premium rises to 4.50%.
| Down Payment Source (90.01% to 95% LTV) | CMHC Premium Rate | Premium on a $475,000 Insured Loan |
|---|---|---|
| Savings, RRSP withdrawal, gift, or sale proceeds | 4.00% | $19,000 |
| Borrowed funds (unsecured loan, line of credit, credit card) | 4.50% | $21,375 |
*Illustrative example: a $500,000 purchase with a 5% down payment ($25,000) leaves a $475,000 insured mortgage.* On this example, choosing a borrowed source over a traditional one adds $2,375 to the insurance premium alone. That premium is typically added to the mortgage and financed over the amortization, so you also pay interest on it for the life of the loan. A borrowed down payment costs more on day one through the premium, and more over time through interest on both the loan and the higher insurance amount.
How a Borrowed Down Payment Affects Your Debt Ratios
Borrowed money for your down payment adds a monthly obligation that counts against you when a lender checks your debt service ratios. Under CMHC guidelines, insured mortgages are generally limited to a Gross Debt Service (GDS) ratio of 39% and a Total Debt Service (TDS) ratio of 44%, though individual lenders can apply tighter limits.
Here is an illustrative example. A household earning $96,000 a year has $8,000 in gross monthly income. Housing costs, mortgage payment, property tax, and heat, come to an illustrative $2,880 a month, putting GDS at 36%.
Add an existing $350 monthly car payment and an interest-only HELOC payment on a $25,000 draw at an illustrative 8%, roughly $167 a month. TDS becomes 42.5%.
That household still qualifies under the 44% ceiling in this illustrative scenario, but with far less room than a buyer using savings with no added debt payment. The math is the real constraint: every dollar borrowed for a down payment shows up as a monthly payment that eats directly into your qualifying ratio.
When a Borrowed Down Payment Actually Makes Sense
A borrowed down payment tends to make sense when your income comfortably clears your debt ratios even with the added payment, and the cost of waiting to save outweighs the extra insurance premium and interest. It rarely makes sense when it pushes your ratios to the ceiling or leaves no buffer for a rate increase at renewal.
Common scenarios where it can work: a repeat buyer using a HELOC on strong equity in a property they are actively selling, or a high-income, thin-savings buyer whose credit profile fits Sagen’s or Canada Guaranty’s programme criteria. It rarely makes sense for a buyer whose ratios are already tight before adding the borrowed payment.
Run the numbers before you decide either way. You can start with an instant pre-approval at pekoe.ca/rates to see how a borrowed down payment payment changes what you qualify for compared with using savings alone.
Comparing Borrowed Funds to Your Other Options
Borrowed money is one source among several, and lenders treat each one differently.
Down payment rules for a rental property covers the stricter case where no borrowed funds are accepted at all, and using cryptocurrency for a down payment covers another source lenders scrutinise closely. The affordability calculator will show you what the added payment does to the mortgage you qualify for.
The citable fact: a borrowed down payment is accepted on some insured programmes and refused outright on others, so the source of funds has to be settled before an offer, not after.
Where to Get This Confirmed for Your Own File
Whether a lender will accept borrowed funds, what premium applies, and how the new payment hits your ratios are mortgage questions, and those are ours to answer on your actual file.
Anything touching deductibility or the tax treatment of borrowed money belongs with an accountant. Interest on money borrowed for a home you live in is not deductible, and the rules change once a property produces income, so get that confirmed rather than assumed. FHSA and HBP limits are set by the Canada Revenue Agency and can change in a federal budget.
The short version: we size the mortgage and the premium, an accountant handles the tax treatment, and neither question should be guessed at.
Frequently Asked Questions
Can I use a HELOC as my down payment in Canada?
Yes, if you already own a property with equity in it, you can draw a HELOC and use the funds as a down payment on a new purchase. The new lender will count your HELOC payment against your debt ratios, so you need enough income to carry both properties during the overlap.
Do lenders require some of my down payment to come from my own money?
Most insured and conventional mortgages expect your down payment, or a meaningful share of it, to be traceable to savings, investments, or a documented gift. The exact own-funds requirement varies by lender and insurer, and a small number of dedicated programmes allow the entire down payment to be borrowed instead.
Does a borrowed down payment cost more than a traditional one?
Yes. On an insured mortgage between 90.01% and 95% loan-to-value, CMHC’s premium rises from 4.00% for traditional sources to 4.50% for borrowed sources, and you also pay interest on the borrowed funds themselves. Both costs are real and ongoing, not one-time.
Will a HELOC or loan payment count against my mortgage approval?
Yes. Any monthly payment on borrowed down payment funds is added into your Total Debt Service (TDS) ratio calculation, generally capped around 44% for insured mortgages. A larger borrowed amount or a higher interest rate on that debt reduces how much mortgage you can qualify for.
What is Sagen’s Borrowed Down Payment programme?
It is a dedicated insurer programme that allows down payment funds to come from an arm’s-length unsecured loan or line of credit, rather than savings or a gift. Canada Guaranty offers a comparable option under its Flex 95 Advantage programme, and both carry stricter credit and income conditions than a standard insured mortgage.
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A borrowed down payment can work, but only when the math supports it and the right lender is willing to underwrite it.
Talk to a broker before you draw a HELOC or take a loan for your down payment, we will run your ratios and tell you honestly whether it makes sense for your file.
