A secured line of credit is revolving credit that a lender backs with an asset you own, most often the equity in your home, so the lender holds a claim on that asset if you default. An unsecured line of credit relies on your credit history, income and existing debts instead. Both let you draw money, repay it and draw again up to a set limit, but they differ in interest cost, borrowing limits, how long approval takes and what you stand to lose if your circumstances change.
How a secured line of credit works
A home equity line of credit is the most familiar example. The lender registers a charge against the property (a mortgage or a hypothec, depending on the province), which gives it the right to enforce that security and sell the property to recover what you owe if payments stop.
Two features matter. First, the limit is tied to the value of the asset rather than to income alone. Lenders apply a maximum loan-to-value ratio and subtract any existing mortgage balance, so a home with a large mortgage leaves less room. Second, because the lender holds collateral, the interest rate is usually lower than on comparable unsecured credit.
Many home equity lines are readvanceable, meaning the available credit grows as the mortgage principal is paid down. Revolving credit also restores as you repay, so the limit is reusable. Setting one up typically involves an appraisal, a title search and legal work, and those costs generally fall to the borrower.
Home equity is not the only option. A line of credit can also be secured by other assets, such as an investment portfolio or savings held with the lender, though that is less common for everyday consumer borrowing.
How an unsecured line of credit differs
An unsecured line of credit has no collateral attached. Approval rests on the lender's assessment of your ability to repay: income, employment stability, credit history and how much debt you already carry relative to your income. Because the lender carries more risk, rates are generally higher and limits lower.
Two consequences follow. The lender has no asset to seize if things go wrong, so it prices for that added risk. And the lender can usually reduce the limit or close the account if its view of your creditworthiness changes, subject to the terms of the agreement and applicable disclosure requirements.
Setup is simpler. There is no appraisal, no title registration and generally no legal fee, and funds can often be available faster than with a secured facility.
Secured vs unsecured: side by side
| Feature | Secured line of credit | Unsecured line of credit |
|---|---|---|
| Collateral | Yes, most often home equity | None |
| Typical interest rate direction | Lower, because the lender holds security | Higher, because the borrowing is riskier for the lender |
| Basis for the limit | A share of the asset's value, less any debt already secured by it | Income, credit history and debt service ratios |
| Approval timeline | Longer: valuation, title search and legal steps | Shorter: documentation review only |
| Setup costs | Appraisal, registration and legal fees may apply | Usually none |
| If you default | Lender can realize on the asset, which can mean losing your home | Lender can pursue collection and legal action but holds no asset |
| Limit flexibility | Can rise as equity grows; often readvanceable | Usually fixed until the lender reviews the account |
Rates, limits and the legal ceiling
Pricing on both products depends on your credit profile, but the secured version usually sits closer to the lender's prime rate because the collateral reduces the lender's potential loss. The unsecured version carries a premium for that same risk.
There is an outer limit. The federal criminal rate of interest is 35 per cent APR, in force since 1 January 2025 under the Criminal Interest Rate Regulations (SOR/2024-114). Charging a cost of borrowing above that threshold under a credit agreement is a criminal offence, subject to the exemptions set out in the regulations. Payday lending is one such exemption, which is why payday loans are regulated separately, with a maximum cost of borrowing of $14 per $100 borrowed, a maximum advance of $1,500, a maximum term of 62 days and a maximum dishonoured-payment fee of $20. Nine provinces have a payday lending regime, and Quebec effectively prohibits payday loans.
For limits, secured facilities are bounded by the value of the asset and by the lender's maximum loan-to-value policy. Federal guidance for federally regulated lenders takes a conservative approach to the revolving portion of a readvanceable mortgage, so the ceiling on a home equity line is usually well below the property's full value, and lower again where a mortgage already sits against the home.
What approval involves
With a secured line, the lender verifies income and existing debts, obtains an appraisal or an automated valuation, searches title and registers its security. It also assesses debt service ratios. Legal work adds time to the process, and if more than one person is on title, consent is normally required from each of them.
With an unsecured line, the lender reviews income, employment, credit bureau data and debt ratios, with no property valuation involved. Decisions can come quickly, though the limit offered may be modest for borrowers with a thin credit file or a high existing debt load.
The risk that matters most to homeowners
Moving unsecured debt onto a secured line can lower the interest rate, but it also moves that debt onto your home. If payments stop, the lender can enforce its security. Depending on the province, that can lead to a power of sale or foreclosure, and where the sale proceeds do not cover the balance, the lender may be able to claim the shortfall.
Other points to weigh:
- Revolving credit restores as you repay, which makes it easy to carry a balance for years rather than clear it.
- A secured facility ties up equity you may want later for a renovation, a move or an emergency.
- Discharging, switching or refinancing the facility later can involve legal fees.
- If property values fall, the available credit can shrink or the lender may reduce the limit.
- Consolidating credit card balances into a secured line reduces the interest cost but removes the unsecured nature of that debt.
None of this makes secured credit a poor choice. It makes it a larger commitment, best suited to planned borrowing where the payments are comfortably manageable and the asset is not something you cannot afford to lose.
Sources and further reading
- Financial Consumer Agency of Canada for consumer information on credit products and cost of borrowing disclosure.
- Criminal Interest Rate Regulations, SOR/2024-114 for the 35 per cent criminal rate of interest and its exemptions.
- Office of the Superintendent of Financial Institutions for residential mortgage underwriting guidance that shapes home equity lending.
- Bank of Canada policy interest rate for the benchmark that influences variable rate credit pricing.
This article is general information only, not financial, legal or tax advice, and Instalment.ca is a loan matching and comparison service, not a lender.