IS YOUR LINE OF CREDIT KILLING YOUR MORTGAGE APPLICATION?
- johnathanmcquoid
- Jan 17
- 2 min read
A line of credit can be a useful tool — until you try to qualify for a mortgage.
Lenders calculate line-of-credit payments very differently than the minimum payment you see on your statement.
And for many buyers, this single detail is the reason they get declined.
Here’s what you need to know 👇
💳 Unsecured lines of credit are a major qualification killer
Lenders don’t use your “minimum payment” when assessing your debt ratios.
They are required to use 3% of the balance as the monthly payment — regardless of what the bank actually asks you to pay.
This means:
✔️ $10,000 balance → $300/mo payment
✔️ $25,000 balance → $750/mo payment
✔️ $40,000 balance → $1,200/mo payment
Even if your bank only requires interest-only payments, lenders must use the 3% calculation for qualification purposes.
That can dramatically reduce your buying power.
🏠 Secured lines of credit (HELOCs) count as mortgages
Many clients tell us:
“I don’t have a mortgage — it’s just a HELOC.”
A HELOC is a mortgage. It’s secured against your home, and lenders treat it that way.
Even though the bank only requires interest payments, mortgage lenders must calculate a full mortgage payment based on:
✔️ the HELOC balance
✔️ a 25-year amortization
✔️ the current benchmark/stress-test rate
Here’s an example:
HELOC balance: $200,000
Benchmark qualifying rate: 5.34% (example rate)
25-year amortization
Lender qualifying payment = ~$1,202/month
Even if you only pay interest of $400–$500/mo, the lender must use the higher payment in your debt ratios.
This can single-handedly disqualify an application.
⚠️ This rule stops more mortgage approvals than most people realize
Line-of-credit balances have become one of the top reasons lenders decline applications — even when income and credit are strong.
Because LOCs are easy to access, many Canadians build them up without realizing the future impact.
By the time they’re ready to buy or refinance, the payment calculations destroy their borrowing power.
💡 What can you do?
Before applying for a mortgage, it’s smart to:
✔️ pay down LOC balances as much as possible
✔️ transfer LOC debt into lower-payment loans (case-by-case)
✔️ consolidate with home equity if available
✔️ review debt ratios with us before house shopping
A small change in how your debts are structured can dramatically increase your qualification amount.
💬 Final Thought
Line-of-credit balances — especially large ones — can quietly kill mortgage applications under today’s qualification rules.
If you have a LOC or HELOC and want to buy or refinance, message The Frontline Mortgage Group before applying anywhere. We’ll calculate the real numbers, show you how lenders view your debt, and help structure things properly so you don’t get blindsided. 💬