Bank of Canada Rate Hike: What It Does to Your HELOC Break-Even
The policy rate rose 0.25 points on October 28 and prime followed the next day. If you borrow against your home to invest, here is what that does to the return you need, in numbers, and how to check your own in the free calculator.
The short answer
For a household with a $650,000 mortgage, a 43.41% marginal tax rate and a HELOC at prime plus 0.2, the quarter point raised the HELOC rate from 4.65% to 4.90% and the break-even return from about 2.5% to 2.7% a year, after tax. At a 5% return the 25-year result against not borrowing fell from about $239,000 ahead to about $222,000 ahead; at 2% it ends behind either way, and further behind after the hike. These are examples with a steady return every year, not forecasts.
What happened
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October 28, 2026: Bank of Canada policy rate2.25% → 2.50%Up 0.25 points, the first increase since July 2023.
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Effective October 29, 2026: big six banks' prime4.45% → 4.70%A prime-based HELOC rate rose by the same 0.25 points.
A HELOC is usually priced at prime plus a margin, commonly between 0.2 and 1 percentage point, so a HELOC that was prime plus 0.2 went from 4.65% to 4.90%. Your lender and your margin may differ: use the rate on your own statement. The Bank of Canada's next scheduled decision is on December 9, 2026, so the numbers can move again.
Sources: Bank of Canada press release, October 28, 2026; National Bank of Canada release, October 28, 2026 (prime 4.70% effective October 29; the other big six banks followed).
The break-even return, in one line
Borrowing to invest costs the HELOC rate h. When the borrowed money is used to earn investment income, the interest is generally deductible, so you get back your marginal tax rate t of it. The cost after the refund is h x (1 - t), and your investments must earn more than that, after tax, for borrowing to come out ahead of not borrowing. The calculator's full month-by-month model lands a little under the simple formula, because the refund also pays down the non-deductible 3.8% mortgage. The full explanation is in the break-even guide.
How to find your break-even in the calculator
- Enter your HELOC rate. Take it from your lender statement (prime is now 4.70%, and HELOCs usually charge prime plus 0.2% to 1%). It goes in the "HELOC Rate (%)" box.
- Pick your province and marginal tax bracket. The bracket sets your refund: every dollar of HELOC interest comes back as a refund equal to that rate. The calculator lists each province's 2026 brackets.
- Read the orange "Break-even return" box. It is the yearly return, after tax on the investment income, that your investments must beat. The bar below it shows where your assumed return sits against that line.
- Test low returns too. The "Expected Return (after tax)" box is an assumption, not a forecast. Try 2% and 5% as well as the default 7.5%, and compare each against your break-even.
Three households, before and after the hike
Same $650,000 mortgage at 3.8% over 25 years in Ontario, three marginal tax rates. Each link opens the calculator with that household's numbers after the hike.
| Household | Marginal rate | HELOC rate | Break-even return | |
|---|---|---|---|---|
| A | 29.65% | 5.45% → 5.70% | 3.96% → 4.17% | Open |
| B | 43.41% | 4.65% → 4.90% | 2.52% → 2.68% | Open |
| C | 53.53% | 5.45% → 5.70% | 2.33% → 2.47% | Open |
The hike raised the break-even by about 0.21 of a point for A, 0.16 for B and 0.14 for C. A higher bracket gives back more of every extra interest dollar, so the same quarter point costs the 53.53% household the least.
What it does over 25 years
The 25-year result compares each household with one that spends the same cash each month without borrowing, assuming a steady after-tax return every year. These are what-ifs, not predictions:
| Household | At a 5% return | At a 2% return |
|---|---|---|
| A | +$100,879 → +$80,228 | −$148,356 → −$164,037 |
| B | +$238,854 → +$221,967 | −$38,650 → −$50,665 |
| C | +$248,624 → +$235,111 | −$23,761 → −$33,933 |
At 2% every household was already below its break-even and the hike widens the gap. The calculator's default return is 7.5%, an assumption you can change.
If rates rise again
HELOC rates are usually variable. This is not a forecast, just a test: household B with the HELOC rate rising further, at a 5% return.
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HELOC 4.90 (today)2.68%break-even · 25-year +$221,967
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HELOC 5.40 (+0.5 point)3.02%break-even · 25-year +$188,780
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HELOC 5.90 (+1.0 point)3.37%break-even · 25-year +$154,178
The cash-flow gap
The net worth numbers hide the cash flow. In year one household B now pays about $421 of HELOC interest out of pocket (it was about $400 before the hike), and the tax refund is about $183, which arrives once a year after you file. The interest grows because principal is re-borrowed each month: over 25 years household B pays about $377,000 of HELOC interest after the hike, up from about $357,000. Check that your budget can carry the gap, including if rates rise again.
What the break-even leaves out
- Tax on your returns. The model treats returns as after tax. At a 20% tax rate on the income, a break-even of 2.8% needs about 3.5% before tax.
- Returns are not guaranteed. Markets can fall for years while you still owe the HELOC. Borrowing to invest can lose money.
- A variable mortgage. The break-even does not depend on your mortgage rate, but your monthly cash flow does.
- The paper trail. The interest is generally deductible only for borrowed money you can trace to an investment that can earn income. Mixing personal and investment borrowing puts the deduction at risk (CRA Folio S3-F6-C1).
This page is education, not tax, legal or investment advice. It does not recommend any investment and does not forecast interest rates or returns. Talk to a licensed Canadian chartered professional accountant and a financial planner before you act.
Watch: the rate hike and your HELOC, step by step
The player loads from YouTube when you press play. Watch on YouTube. Education, not advice; narration is AI-generated.
Questions about the rate hike
Did the Bank of Canada hike change the Smith Manoeuver itself?
How much does a 0.25 point hike raise the break-even?
Does a higher marginal tax rate protect me from a rate hike?
I have a variable-rate mortgage. Does that change the break-even?
Is the break-even a prediction that I will come out ahead?
Find the break-even for your own numbers
Enter your mortgage, HELOC rate and marginal tax rate to see your break-even, the 25-year result and the year-by-year cash flow.
Open the Smith Manoeuver CalculatorRelated guides
Keep the trail the CRA expects
The HELOC Interest Tracing Ledger records each HELOC draw, what it bought and your monthly interest, flags draws that were only partly or late invested, and gives your accountant a line 22100 summary.