Unsure whether to choose a HELOC vs refinance Canada? AJP Mortgage breaks down the key differences, helping you make an informed decision for your financial future.
How to Make Extra Money? Look At Your Home’s Equity
Having trouble paying for new expenses which came up out of nowhere? Or do you simply want to redecorate your home but do not have the funds? If you are based in Canada, owning a home means you have its equity on your side which can provide extra cash.
The real struggle comes when you have to choose between a HELOC and refinancing your mortgage. Which one is better?
HELOCs are like credit card accounts attached to a house. It gives a borrower access to a credit line and only withdraws the needed amount when it is needed. This can be spent on anything.
This includes paying off any debt that has high interest and also home improvements. The twist is that the borrowers have to pay interest only on the amount that was borrowed.
On the contrary, refinancing suggests replacing your mortgage with a new one. This new one can offer better terms, a lower interest rate, or a bonus of getting a lump sum right away. This is perfect for anyone trying to tackle big debt or for useful renovations.
Which one should you buy? It relies on your objective, how much money you hope to make, and how you wish to utilize it. In this guide, we will assist you in understanding the major differences between a HELOC and refinancing, which will enable you to use your home equity in your best interest.
Home Equity Line of Credit (HELOC)
In Canada, a Home Equity Line of Credit (HELOC) is a credit type that is secured with a borrower’s home equity. The borrower can draw cash as long as it is not above the credit limit. It is resembles a credit card, as there is a limit set for borrowed funds.
Quick Stats: As of 2024, the remaining balances of HELOCs in Canada reached a staggering 170.8 billion dollars, which marked an increase of 3% over the previous year. This reveals a clear trend where homeowners are tapping into their equity more often.
How It Works?
Credit Limit: A borrower has access up to $100,000 or 65% of; the equity of the borrower’s home depends on the mortgage and HELOC. This total combined should not surpass 80%.
Accessing Funds: Funds can only be accessed once the borrower is approved. The borrower can cash them through cheques, credit cards, or even transfer the funds online.
Repayment: A borrower is only required to pay back the interest on the cash drawn. In some plans, a borrower can elect for interest only for a set time period before moving to principal repayments.
Interest Rates: Sometimes, HELOCs come with variable interest rates, usually used in conjunction with the prime rate.
HELOC is easier to secure, has a lower interest rate, and simply provides more liberty than a traditional loan, which is helpful for homeowners who require funds. But as with anything involving money, one must be cautious so that the overall financial situation does not deteriorate.
Mortgage Refinance
Mortgage refinancing involves replacing your current mortgage with a new one, often to secure a better interest rate, adjust the loan term, or access home equity.
Quick Stats: A 2021 report shows that nearly $881 billion in Canadian mortgages will be up for renewal, with over $378 billion maturing in 2025 and $504 billion in 2026. This surge in renewals is likely to impact the housing market and consumer spending.
How It Works?
Securing a New Loan: Loans can be taken out to settle existing mortgages wherein homeowners apply for a mortgage that pays off previously existing ones.
Accessing Equity: In case the value of the home has gone up, refinancing can help obtain extra money for several purposes such as alteration, settling previous debts, or other financial objectives.
Adjusting Loan Terms: By refinancing, borrowers are able to change the duration of the mortgage which impacts the monthly obligations and the total amount of interest incurred over the years.
In addition to renew financing a mortgage, you can change its terms, put it on a more favorable interest rate, or take a loan against the home, if the need arises. Always be mindful of pursuing strategies that align with your financial goals or considering what the costs of those actions may be.
HELOC vs Refinance Canada
Not sure whether to choose a HELOC or refinance? Explore the key differences and find the best option for your financial needs with best Mortgage Solutions. Get expert insights and make an informed decision today!
Loan Type
HELOC: A HELOC is often referred to as a home equity line of credit. A HELOC functions similarly to a credit card. Instead of a card, you receive a line of credit that you can regularly withdraw from as needed. The primary distinction is that you are not charged for the entire limit but only for the amount used.
Refinance: Refinancing transforms your current home loan into a brand new mortgage. Refinancing is done to modify the existing terms of your mortgage. You may also increase the amount of loan taken so as to take cash out for other uses.
Access to Funds
HELOC: As previously discussed, a HELOC is a credit facility and one of its features is having a certain limit spendable at any given time. This is ideal for long term cash flow purposes such as paying for recurring expenses like holiday travel or mortgage debt payments. You will only incur interest on money used.
Refinance: When you refinance, the mortgage broker will assess the equity that you have in the home. This financial obligation gives you cash once equity is established. The refinancing option is mostly preferred when dealing with major predefined expenditures for instance big renovations or consolidating multiple high interest loans.
Repayment Structure
HELOC: For Home Equity Line of Credit, borrowers typically only make interest payments during the draw period of around 5-10 years. Both principal and interest payments begin after the draw period. Additionally, repayment terms are more forgiving because payment obligations are only to the extent of withdrawals.
Refinance: When people refinance, they transfer an existing loan with particular mortgage terms to a new loan with altered terms. This means that you will pay on both the principal and the interest straight away as per the new mortgage terms.
Refinancing has a little more rigidity when it comes to payment by either having a fixed, or adjustable rate, as well as a required monthly payment.
Interest Rates
HELOC: Interest on any HELOC is often on a variable basis meaning it will change based on the prime rating. This is an advantage for people when the rating is low but when it increases, payments similarly go up, therefore it can be a downside later.
Refinance: During the refinancing process, it is possible to set a fixed rate, or for the more daring, shift it to a variable one. With the advancements in technology, it is also dependent on the financial standing of the market. Fixed rates are easy in that they never change but variable rates are effective as long as one is willing to step into the unknown.
Approval Process
HELOC: The process of acquiring a HELOC is often faster and easier than the process of refinancing. Generally, a credit check as well as a home appraisal are required, but proof of income can be more lenient. When time is of the essence, this method is more ideal.
Refinance: Refinancing tends to take longer to process. Financial documentation such as income verification will need to be filed, and you will most likely require a new property appraisal. This method takes more time, but if you are seeking a more permanent resolution, or better mortgage rate, it may be worth the wait.
Flexibility
HELOC: A HELOC is more versatile as long as you stay within your credit limit. This makes for easier borrowing and repayment of credited funds. Having this sort of flexibility makes these loans great for any unexpected costs such as home repairs or education expenditures.
Refinance: Having set terms means there is less flexibility within a refinance. On the flipside, you receive a lump sum vendor payment, but will also be tied to fixed monthly payments. As a refinance, it is more focused on long-term stability.
Purpose
HELOC: If cash is needed for ongoing items, cash for home improvements, or credit card shrinks, then a HELOC is the best optiuon. If you have expenses that come up repeatedly over time and are manageable, it’s a great option.
Refinance: If you want to remodel a home, combine large debts, or simply lower your monthly payments, refinancing is a better option. It is good if you are looking for more money or want to change the terms of a mortgage for a loan in the long run.
Closing Costs
HELOC: The closing costs for a HELOC are lower than refinancing, so you are not losing as much money while getting an appraisal or straying into administrative payments. The process is eased similar to other accounts, which is beneficial as well.
Refinance: While refinancing proves to be useful, it also has costs that should not be ignored. Always take into account the expenses for administration, and legal costs for new appraisals, as they make a big difference in profitability in the end.
Heloc vs refinance canada cost
Wondering about the cost differences between a HELOC and refinancing in Canada? Let trusted home equity lenders help you navigate your options and choose the best path for your financial future.
| Category | HELOC | Refinance |
|---|---|---|
| Purpose | Ongoing/variable expenses (renovations, emergencies). | Large one-time expenses (debt consolidation, major renovations). |
| Access to Funds | Revolving credit (draw as needed, up to limit). | Lump sum disbursed at closing. |
| Interest Rate | Typically variable (linked to prime rate). | Fixed or variable (depends on new mortgage terms). |
| Repayment Structure | Minimum interest-only payments; flexible principal repayment. | Structured payments (principal + interest) over the loan term. |
| Loan-to-Value (LTV) | Up to 65% of home value (combined with mortgage ≤80%). | Up to 80% of home value. |
| Impact on Existing Mortgage | Secondary loan; original mortgage remains unchanged. | Replaces existing mortgage with new terms. |
| Flexibility | High (reuse funds as you repay). | Low (fixed lump sum; no reuse). |
| Costs/Fees | Lower upfront (appraisal, legal, annual fees). | Higher (legal fees, appraisal, mortgage penalty, closing costs). |
| Tax Implications | Interest tax-deductible if used for income-generating investments. | Same as HELOC; deductible only for investment purposes. |
| Risks | Variable rate fluctuations; overspending risk. | Penalties for breaking mortgage; potential long-term interest costs. |
| Ideal For | Short-term, flexible borrowing needs. | Long-term restructuring or securing better mortgage terms. |
Tax Implications in Canada
Let’s break down the tax implications for a HELOC or Home Equity Line of Credit and mortgage refinancing in Canada step by step.
HELOC
Interest is non-deductible in personal expenditure like renovations to the home.
Interest Deduction is allowed for investments in rental properties.
Mortgage Refinancing
Interest is non-deductible in personal expenditure such as one’s own house.
Investment Use – In case there is a refinance with usage of funds in equity investments in real estate, then the interest may be deductible.
Key Considerations
Heloc vs refinance canada pros and cons
Confused about HELOC vs mortgage loan refinance? Get the facts on the pros and cons to help you make an informed decision for your home.
HELOC (Home Equity Line of Credit)
Thinking about a HELOC? Weigh the pros and cons with AJP Mortgage to decide if it’s the right financial move for you!
Pros
Flexibility: The credit limit can be borrowed against, repaid, and borrowed again.
Lower Initial Payments: It is possible to pay only the interest on the loan.
Access to Funds: Funds can be accessed easily when home renovations or debt consolidation are needed.
Variable Rates: Interest rates can be lower while compared to an unsecured loan or credit cards.
No Need to Refinance Existing Mortgage: There is no need to re-negotiate the terms of your mortgage.
Cons
Variable Interest Rates: In case of an increase in the prime rate, the payments made will also increase.
Risk of Over-Borrowing: Easier access to funds might lead to borrowing beyond affordable amounts.
Potential for Higher Long-Term Costs: Payments may extend for an even longer duration.
Equity-Dependent: In order to qualify, you need substantial home equity.
Risk of Losing Home: The chance of foreclosure presents itself if payments are defaulted on.
Refinancing
Considering refinancing? Explore the pros and cons with AJP Mortgage to see if it’s the right solution for your home and finances!
Pros
Fixed or Better Rates: It is possible to fix a rate when refinancing or the rate can be re-adjusted in a later term.
Debt Consolidation: High-interest debts can be consolidated into one lower rate payment.
Long-Term Stability: Remembered for having new fixed payments, and also repaired a refinance.
Cash-Out Option: Cash can be claimed when refinancing, as long as it is put towards the remainder balance of the mortgage.
Improved Terms: The current mortgage terms can be altered to better suite your financial needs.
Cons
Closing Costs: Getting charged new fees and other penalties that will come from other loans can be very expensive.
Longer Loan Term: If the extension of the term of a loan is longer than the original period, then the total interest paid in the long run will be higher.
Equity Required: Refinancing requires equity to be readily available for use.
Lost Flexibility: Funds are not as easily accessible as they are with a line of credit to a home.
Impact on Existing Mortgage: May affect other mortgage terms including the amount paid each month on the mortgage.
When to Choose a HELOC vs Refinancing
Wondering when to choose a HELOC vs mortgage loan refinance? Learn how to decide the right option based on your financial needs and goals
Choose a HELOC if
You need flexibility: You can borrow and repay as needed, up to your limit, which makes it great for ongoing expenses like home renovations or emergencies.
You have equity in your home: You need access to a large amount of credit but don’t want to lock yourself into a fixed loan amount.
You want lower initial costs: HELOCs usually have lower setup fees compared to refinancing.
You want a variable interest rate: Ideal if you expect interest rates to stay stable or drop over time.
Choose Refinancing if
You want a fixed interest rate: Refinancing gives you the option to lock in a stable rate, which can be helpful if interest rates are rising.
You need a lump sum amount: If you need to borrow a large sum of money for a major purchase (e.g., paying off debt, buying a car, or making a large investment), refinancing might be better.
You want to lower your monthly payments: Refinancing could help lower your payment by extending your loan term or securing a lower interest rate.
You’re looking for a fresh start: Refinancing could be a good option if you want to renegotiate your mortgage terms, combine multiple loans, or access more equity.
Risk Factors: What If Rates Rise or Home Prices Drop?
Concerned about rising rates or falling home prices? Learn how to protect your investment and make smart moves with AJP Mortgage’s expert guidance. Stay ahead, no matter what the market does!
If Interest Rates Rise
HELOC: Your payments could go up because most HELOCs have variable interest rates.
Refinancing: If you refinance with a fixed rate, your payments stay the same. But if you choose a variable rate, your payments could increase as rates rise.
If Home Prices Drop
HELOC: If your home value drops, you may lose access to credit or be able to borrow less, especially if your loan-to-value ratio becomes too high.
Refinancing: If your home value drops, you may not be able to refinance or access as much equity. You could also face higher rates or need to pay for mortgage insurance if your equity decreases.
Key Risks
How AJP Mortgage Can Help?
Unlock the best mortgage solutions with AJP Mortgage – where low rates, fast approvals, and flexible options make homeownership easier than ever. Let us guide you to your dream home!
For HELOC
Expert Guidance: We will explain each step in depth on how the HELOC operates and provide assistance in choosing whether it suits your financial position. From home improvement projects and debt consolidation to other spending, we offer professional guidance.
Access to Competitive Rates: AJP Mortgage ensures the best rates of HELOCs as we cooperate with relevant elite lenders.
Flexible Solutions: We will ensure that you are able to tap into your home equity at any point in time you require. We’ll will work with you to determine the best plan that meets your needs without any obligations.
For Refinancing
Lower Monthly Payments: Refinancing is a good prospect if you want to save on payments. We can analyze in detail your current mortgage and do our best to secure more favorable terms for you.
Access to Your Home’s Equity: Refinancing enables you to gain access to the equity of your home whether as a loan to consolidate debts or major purchases. We will ensure that the most value for your property is realized.
Customized Plans: All borrowers are not the same, hence, we will create a more suitable refinancing plan that works for your specific financial position. Whether fixed or variable rates are more beneficial, we will do all the heavy lifting for you.
At AJP Mortgage, we carefully analyze your goals, and guide you through the decisions which will benefit you the most financially. Whether you’re refinancing or considering a HELOC, we are here to ensure everything goes smoothly.
HELOC vs Refinance Canada: Final Verdict
When deciding between a HELOC and refinancing, it really depends on what you need:
HELOC: Great for flexibility and easy access to credit when you need it. Ideal if you’re planning home improvements or have ongoing expenses.
Refinancing: Better for getting a lump sum of money or locking in a fixed interest rate. It can also help lower your monthly payments or access equity for big expenses.
Decision Checklist
✅ Do you need funds all at once? → Refinance
✅ Do you prefer low monthly payments? → Refinance
✅ Are you comfortable with variable rates? → HELOC
✅ Do you want to lock in a low rate? → Refinance
✅ Do you need frequent access to cash? → HELOC
Not sure which one is right for you? AJP Mortgage can help! Whether you’re interested in a HELOC or refinancing, we’ll walk you through the options and help you find the best fit. Contact us today for expert advice!
Frequently Asked Questions
Is it better to refinance or get a HELOC?
Refinance is better for a lump sum or lower payments.
HELOC is better for flexible, ongoing access to funds.
Which is better, a refinance or a home equity loan in Canada?
Refinance offers a new mortgage with lower payments.
Home equity loan is a fixed amount with predictable payments.
What is the monthly payment on a $50,000 home equity line of credit?
It depends on the interest rate and how much you borrow. Payments can start low and increase as you pay down the balance.
What is the downside of a HELOC?
Interest rates are often variable, so payments can increase. It’s also easy to borrow too much, leading to more debt.
