A HELOC gives you revolving credit you can draw and repay repeatedly, a home equity loan gives you one lump sum at a fixed structure, and a refinance replaces your mortgage with a larger one — all three borrow against your home, but they differ in rate type, flexibility, and what happens if your plans change. Choosing by the shape of your spending, not just the rate, is what keeps the cheapest option from becoming the most expensive one. For the no-payment alternative, see reverse mortgages: the no-payment equity option for 55+.
How does a HELOC work in Canada?
A home equity line of credit is revolving credit secured by your home, usually at a variable rate tied to prime. You draw what you need, pay interest on what you have drawn, and can repay and redraw within the limit during the draw terms your lender sets. Combined HELOC-and-mortgage products have regulatory limits on the total secured borrowing relative to your home’s value, and your lender will confirm your specific limit. A HELOC suits costs that arrive in stages — a renovation with progress payments is the classic example — because you only pay interest on money actually out the door.
How is a home equity loan different?
It is a separate loan for a set amount, with a set payment schedule — closer to a second mortgage in structure. You get certainty of payment and usually a fixed structure in exchange for giving up the redraw flexibility: once repaid, that money is not available again without a new application. It suits one defined cost with a known total.
When does a full refinance beat both?
When your existing mortgage rate is uncompetitive, when you want one payment instead of two or three, or when the amount you need is large enough that mortgage pricing beats line-of-credit pricing by enough to cover the refinance costs — legal fees, appraisal, and any penalty to break your current term early. That penalty check is not optional: breaking a fixed mortgage mid-term can cost far more than the rate saving, which is why I run the full math before recommending it. Start any of the three conversations with a Mortgage Renewal Check if your term is ending soon anyway — timing a refinance to renewal can eliminate the penalty entirely. Also see cash-back mortgages: who pays for the ‘free’ money, and blend-and-extend: borrowing more without breaking your term.
“She got everything done fast and found me a great rate too. Honestly, I felt really taken care of the whole time.” — Vince, Google review
Photo via Wikimedia Commons.
Renovation, debt consolidation, or a major purchase coming up? Call me at (780) 722-5621 and we will compare all three structures on your actual balance, rate and timeline — including the penalty, in writing. Or start with the Pre-Approval & Refinance Check.
By Travis Bannert, Realtor and Mortgage Broker
Travis Bannert, Mortgage Broker | Next Door Mortgages, BFL Dominion Lending Centres | (780) 722-5621 | nextdoormortgages.com