Side-by-Side: How a HELOC and a Refinance Differ
Both products are secured against your home's equity, which makes either one significantly cheaper than unsecured credit cards (19.99%+) or personal loans (9% to 14%). However, they work very differently under Canadian lending rules:
Canadian Rules: HELOC vs. Mortgage Refinance
| Feature | Mortgage Refinance | Home Equity Line of Credit (HELOC) |
|---|---|---|
| Maximum Equity Limit | Up to 80% of appraised value | Up to 65% standalone (80% combined with a mortgage) |
| How Funds Are Received | One lump sum at closing | Revolving line: draw, repay, and draw again |
| Interest Rate Structure | Lower fixed or variable mortgage rate | Variable rate (typically Prime + 0.50% to 1.00%) |
| Monthly Payment Rule | Scheduled principal + interest | Often interest-only minimum on drawn balance |
| Existing Mortgage Impact | Replaces existing mortgage | Can sit behind your existing mortgage untouched |
Compare both options with your own numbers in our HELOC Limit & Payment Calculator or our Mortgage Refinance Calculator.
When a Mortgage Refinance Wins
- You are consolidating a set amount of high-interest debt ($30,000 to $100,000+): Because a mortgage refinance carries a lower interest rate than a HELOC and amortizes over up to 25 or 30 years, it maximizes monthly cash-flow relief while steadily paying down principal.
- You need between 65% and 80% Loan-to-Value: A standalone revolving HELOC stops at 65% LTV. To access the full 80% equity ceiling, the borrowing above 65% must sit inside an amortizing mortgage.
- Your mortgage is near renewal: At maturity there is zero prepayment penalty to replace your mortgage and fold in outside balances.
When a HELOC Wins
- You have an ultra-low fixed rate on your existing mortgage: Adding a standalone HELOC leaves your existing first mortgage and its low rate untouched, avoiding a mid-term prepayment penalty.
- You are paying for renovations in stages: If a contractor bills you over six months, a HELOC lets you draw as invoices arrive so interest only runs on what has been spent.