Equity, LTV and the Number Lenders Watch
Loan-to-value, or LTV, is your total secured debt divided by your home's value. The Financial Consumer Agency of Canada's guide to borrowing against home equity defines equity as the appraised value of the home minus the mortgage, any home equity line of credit and any other loans secured by the property. That definition does two useful things. It tells you the value that counts is an appraised value, not a hopeful one. And it tells you a HELOC belongs in the calculation, not just the first mortgage.
The same guidance sets out the benchmark that shapes most decisions: financial institutions will usually let total borrowing secured against a home reach 80% of its value. On a $250,000 home, that caps secured borrowing at $200,000. When the value falls, the dollar amount of that 80% ceiling falls with it, even though your balance has not moved.
What 3% Does, and Does Not Do
Strictly, negative equity means owing more than the home is worth. A 3% decline on its own only creates that condition for owners who had less than 3% equity to begin with. For most renewers, the more relevant line sits much higher, at 80%. The arithmetic is simple: if your balance holds steady and your value drops 3%, your LTV rises by about 3% of itself.
Illustrative calculation: new LTV = old LTV ÷ 0.97. Your principal payments over the term push the other way and may offset part of the change.
The takeaway is sharper than the headline suggests. A 3% national decline, by itself, only pushes you across 80% if you were already sitting at roughly 77.6% or higher. That is a narrow band. The borrowers most exposed are the ones Equifax's figure cannot see: owners in local markets that fell by more than the national average, owners who added a HELOC on top of their mortgage, and owners who bought near the 2022 peak with thin down payments and have had only a few years of principal repayment since.
A national average blends markets that rose with markets that fell. Your home could be down more than 3%, or not down at all. The only valuation that decides a switch or refinance is the one your lender or its appraiser accepts.
For the longer view of how debt and values have diverged on Canadian balance sheets, see our analysis of mortgage debt climbing while real estate values slipped in late 2025.
