Readvanceable Mortgages in Canada: How They Work and Which Lenders Offer Them
The loop that re-borrows principal to invest is the Smith Manoeuvre guide. Whether the interest is deductible is the HELOC strategies guide, and it depends on what the dollars buy. Switching this kind of plan at renewal is outside OSFI's straight-switch exemption, which the 2026 renewal guide spells out. The rate decision on the amortizing slice is the fixed versus variable framework, under the Canadian mortgage guide.
- Combined loan plans are capped by two OSFI numbers: 65% loan-to-value for the non-amortizing revolving portion, and 80% for the whole plan on a conventional uninsured loan.
- Principal paid on the slice above 65% is supposed to reduce the overall limit until the whole plan sits at 65%. Only then does further principal become credit you can draw again, and only if your contract readvances.
- As of September 2026, lender pages that describe this structure include Scotiabank's STEP, TD's Home Equity FlexLine, and Manulife One. Other banks market their own plans. Ask whether principal paid increases the revolving limit without a new application.
- These plans are usually a collateral charge. OSFI's straight-switch letter excludes combined plans that are readvanceable. Budget for a discharge if you want to leave.
- Borrowing the readvance to buy a kitchen, a car, a TFSA, an RRSP, or an FHSA does not make the interest deductible.
How does the 65% line work?
| Slice of value | What OSFI expects |
|---|---|
| Up to 65% loan-to-value | Can be a non-amortizing revolving HELOC. This is the portion that can readvance if the contract says so. |
| From 65% to 80% | Amortizing, and not readvanceable. Principal payments on this slice reduce the overall authorized limit until the whole plan is down to 65%. |
| Above 80% | Outside a conventional uninsured plan. A purchase above 80% loan-to-value generally needs default insurance, and a HELOC is not how you insure that top slice. |
Table as of September 2026. Sources: OSFI's clarification on innovative real-estate secured lending under Guideline B-20, and OSFI's June 2022 description of combined loan plans. Lenders can be tighter than these caps.
Eighty percent of $800,000 is $640,000. Sixty-five percent is $520,000. The $120,000 between those two lines is the slice that has to amortize and must not readvance. At an assumed 4.50% rate, compounded semi-annually, a $640,000 balance on a 25-year schedule has a payment of about $3,542. In the first month, interest is about $2,378 and principal is about $1,164.
That $1,164 of principal does not automatically become spendable credit while the plan is still above 65% loan-to-value. OSFI expects principal on the portion above 65% to shrink the overall limit. The first $120,000 of principal is the part that retires the non-readvanceable slice. After the whole facility is at 65% of value, later principal can become revolving room if, and only if, the contract is readvanceable. Scotiabank's STEP page describes a related mechanic in the bank's own words: a global limit up to 80% of value, including up to 65% for line-of-credit products, with a limit above 65% that declines toward 65%. Confirm which mechanic your commitment uses. The 4.50% rate is an assumption, not a STEP rate or a TD rate.
Which lender pages describe the product?
Rates and spreads are omitted on purpose. They change without notice, and a blog column of "prime plus 0.50" would be stale the week a lender revises it. The question that matters for a Smith Manoeuvre, or for any plan that assumes credit comes back, is whether the revolving limit increases when principal is paid, without a new application.
| Lender page | Product | What the page says |
|---|---|---|
| Scotiabank | Scotia Total Equity Plan (STEP) | One plan that can hold mortgages and lines of credit. Global limit up to 80% of the home's value, including up to 65% for line-of-credit products. A limit above 65% declines toward 65%. As you pay the mortgage down, borrowing power can increase. You can split mortgage portions across terms. |
| TD | TD Home Equity FlexLine | A revolving portion plus optional term portions. With 20% or more down, TD says you can buy with the FlexLine, and as you pay it down, credit becomes available up to the credit limit. Borrowing up to 80% of value uses a term portion. The revolving portion is interest-only at a minimum, at a variable rate based on TD's prime. |
| Manulife Bank | Manulife One | Manulife describes it as one account that combines the mortgage with chequing, so deposits reduce the borrowed balance. That is a different shape from a mortgage sub-account sitting beside a separate HELOC. Ask how the limit treats principal, and what the monthly account fee is. |
RBC, BMO, CIBC, and National Bank also market home-equity plans under their own names. A page that says "apply to increase your limit" is a HELOC beside a mortgage. A page that says the limit rises as you pay principal is the readvanceable feature. Get that sentence from the commitment, not from a comparison table. Product names and mechanics change. The pages above were the ones reviewed in September 2026.
What else changes when the mortgage is a collateral charge?
The charge registered on title often covers the whole plan limit, which can be more than the amount you have drawn. Leaving for another lender is usually a discharge and a new registration, with legal fees, not a simple assignment. OSFI's November 21, 2024 straight-switch letter says the stress-test exemption applies to stand-alone uninsured mortgages outside combined loan plans, that are amortizing and not readvanceable. A readvanceable plan fails that footnote. At renewal, expect a full application if you want to move it, and read the renewal guide before you trade a plain mortgage for a plan you may not be able to switch cheaply.
The tax rule does not care which bank's logo is on the statement. Paragraph 20(1)(c) follows the current use of the borrowed money. A readvance that buys dividend-paying investments in a non-registered account is the fact pattern the Smith Manoeuvre guide is about. A readvance that contributes to a TFSA, an RRSP, or an FHSA fails the purpose test even when the contribution itself is sensible. A readvance that pays the kitchen is a kitchen. Keep the investment tranche in its own account. The HELOC guide is the paper trail. An emergency fund that depends on the line staying open is a different risk, covered in emergency fund, HELOC, and investments.
Frequently asked questions
What is a readvanceable mortgage?
It is a combined plan: an amortizing mortgage and a revolving line, usually under one collateral charge, where available credit can increase as you pay principal. OSFI calls these combined loan plans. The revolving portion is capped at 65% of value. The slice from 65% to 80% amortizes and is not supposed to readvance. If your contract requires a new application to raise the limit, you have a HELOC beside a mortgage, which is a useful product and a different one.
Which Canadian lenders offer one?
As of September 2026, Scotiabank's STEP, TD's Home Equity FlexLine, and Manulife One each have a public page describing a combined mortgage and revolving facility. Other banks publish their own home-equity plans. This guide does not rank them and does not quote spreads. Ask one question: when I pay principal, does the revolving limit rise without a new application, and does any of that rise stop above 65% loan-to-value?
Can I get a readvanceable mortgage with less than 20% down?
The revolving cap is 65% of value, and the whole conventional plan tops out at 80%. A high-ratio insured mortgage, above 80% loan-to-value, is a different product. You generally need equity before a HELOC exists. Buying with a small down payment and expecting an immediate readvanceable limit is the wrong sequence. Pay the insured mortgage down, then ask.
Does a readvanceable mortgage avoid the stress test at renewal?
No. OSFI's straight-switch exemption excludes combined loan plans that are readvanceable. Moving one to another federally regulated lender is underwritten as its own application. Staying with the same lender for a plain renewal of the term portion is a different conversation. Adding a HELOC you do not already have is new credit.
Is HELOC interest tax deductible?
Only when the money was borrowed to earn income from a business or property, and that use continues. CRA's Folio S3-F6-C1 is the document. The home you live in does not qualify. A registered account does not qualify, because the income is not taxed in your hands. Split the limit into a dedicated investment tranche if you are running a Smith Manoeuvre, and do not pay groceries from that tranche.
What happens if the home's value falls?
The limit is a percentage of value. A lender can re-appraise and cut undrawn credit, or freeze the line, if value falls or if your file changes. A plan that assumes every principal dollar comes back as credit is assuming the collateral and the lender's policy stay put. Keep a cash reserve that does not depend on the line. The emergency-fund guide is that reserve.
Sources
- OSFI: clarification on combined loan plans under Guideline B-20
- OSFI: 65% loan-to-value limit on combined plans
- OSFI straight-switch letter, footnote on readvanceable plans
- Scotiabank: Scotia Total Equity Plan (STEP)
- TD Home Equity FlexLine
- Manulife One
- CRA Folio S3-F6-C1, Interest Deductibility
The product frees credit. The deduction depends on what you do with it.
A readvance spent on the house you live in is still personal interest. The 2026 tax guide is the filing side of a borrow-to-invest plan.
Get the 2026 Tax Guide — $49 CAD
