Mortgage, home equity loan, HELOC — all three are secured by your home, but they work very differently. Here’s a comprehensive comparison to help you decide which product fits your situation.
The quick comparison
| Feature | First Mortgage | Home Equity Loan (HEL) | HELOC |
|---|
| Purpose | Purchase or refinance a home | Borrow against existing equity (lump sum) | Borrow against existing equity (revolving) |
| Disbursement | Lump sum at purchase/refinance | Lump sum | Draw as needed, repay, draw again |
| Rate type | Fixed or variable | Fixed (usually) | Variable (prime + spread) |
| Typical rate (2026) | 4.00%–5.50% | 6.00%–8.50% | Prime + 0.50% to prime + 2.00% |
| Payment structure | Principal + interest (amortized) | Principal + interest (amortized) | Interest-only minimum |
| Max LTV | 95% (insured) / 80% (uninsured) | 80% combined | 65% standalone / 80% combined |
| Title position | First charge | Second charge (usually) | First or second charge |
| Term | 1–10 years (25-yr amortization) | 1–10 years (fully amortized) | Revolving (no set term) |
| Prepayment | Limited (penalties apply) | Usually more flexible | Fully open — repay anytime |
How they work — side by side
First mortgage
You borrow money to buy a home. The loan is amortized over 25 years (or 30 for insured first-time buyers under 2024+ rules), but the interest rate is locked for a term of typically 1–5 years. At the end of each term, you renew at current rates.
Cash flow: Fixed monthly payments that cover both principal and interest. Payments stay the same for the entire term (fixed rate) or fluctuate with prime (variable rate).
Home equity loan
You’ve already bought a home and built equity. You borrow a specific amount against that equity in a single lump sum. You repay in fixed monthly installments over the loan term — there’s no renewal; you pay it off completely by the end of the term.
Cash flow: Fixed monthly payments, fully amortized. Predictable from day one.
HELOC
You’ve built equity and want flexible access. A HELOC acts like a credit card secured by your home — you can draw funds, repay, and draw again up to your credit limit. The minimum payment is usually interest-only.
Cash flow: Variable. You only pay interest on what you’ve drawn. Minimum payments fluctuate with prime rate changes.
Rate comparison in detail
| Product | Rate Basis | Current Range (2026) | Payment on $100K |
|---|
| 5-year fixed mortgage | Market bond yields | 4.09%–4.69% | $543–$567/mo (25-yr am) |
| Variable mortgage | Prime – discount | 4.45%–5.20% | $553–$583/mo (25-yr am) |
| Home equity loan | Fixed, second-position pricing | 6.00%–8.50% | $1,135–$1,254/mo (10-yr) |
| HELOC | Prime + spread | 5.45%–7.00% | $454–$583/mo (interest only) |
Key insight: The HELOC minimum payment looks lowest, but that’s because it’s interest-only — you’re not paying down the principal. Over time, a HELOC costs more if you only make minimum payments.
Total interest cost: $100,000 over 10 years
| Product | Assumption | Total Interest Paid | Total Payments |
|---|
| Mortgage (first position) | 4.50% fixed, 25-yr am | ~$26,000 (first 10 yrs) | ~$126,000 |
| Home equity loan | 7.00% fixed, 10-yr am | ~$39,500 | ~$139,500 |
| HELOC (interest only) | 6.00% variable, never repay principal | ~$60,000 | ~$160,000 |
| HELOC (aggressive repayment) | 6.00% variable, $1,200/mo | ~$23,500 | ~$123,500 |
The HELOC can be the cheapest or most expensive option — it depends entirely on your repayment discipline.
Maximum borrowing amount
LTV rules in Canada
| Product | Maximum LTV | Regulatory Basis |
|---|
| Insured mortgage | 95% (min 5% down) | CMHC/Sagen/Canada Guaranty guidelines |
| Uninsured mortgage | 80% | OSFI B-20 guidelines |
| HELOC (standalone) | 65% | OSFI B-20 guidelines |
| Mortgage + HELOC combined | 80% | OSFI B-20 guidelines |
| Mortgage + HEL combined | 80% | OSFI B-20 guidelines |
Borrowing example: home worth $700,000
| Scenario | First Mortgage | Second Product | Total Borrowed | LTV |
|---|
| Mortgage only | $560,000 | — | $560,000 | 80% |
| Mortgage + HELOC | $420,000 | $140,000 HELOC | $560,000 | 80% |
| Mortgage + HEL | $420,000 | $140,000 HEL | $560,000 | 80% |
| HELOC only | — | $455,000 HELOC | $455,000 | 65% |
| Mortgage $400K + HELOC | $400,000 | $160,000 HELOC | $560,000 | 80% |
Qualification comparison
| Criteria | First Mortgage | Home Equity Loan | HELOC |
|---|
| Credit score (A-lender) | 680+ | 680+ | 680+ |
| GDS limit | 39% | Combined payments ≤39% | Combined payments ≤39% |
| TDS limit | 44% | Combined payments ≤44% | Combined payments ≤44% |
| Stress test | Qualifying rate or contract + 2% | May apply | Typically at contract rate |
| Income verification | Full documentation | Full documentation | Full documentation |
| Appraisal | Required | Required | Required (or AVM) |
| Minimum equity | 5% down (insured) | 20% (after combined LTV) | 35% (standalone HELOC) |
Cost comparison
Setup costs
| Cost | First Mortgage | Home Equity Loan | HELOC |
|---|
| Appraisal | $300–$500 | $300–$500 | $0–$400 |
| Legal fees | $1,000–$2,000 | $800–$2,000 | $0–$1,000 |
| Title insurance | $200–$400 | $200–$500 | $0–$300 |
| Lender fee | $0 (A-lender) | $0–$3,000 | $0 |
| Total | $1,500–$2,900 | $1,300–$6,000 | $0–$1,700 |
HELOC is often cheapest to set up — many banks waive all fees when setting up a HELOC, especially as part of a readvanceable mortgage.
Ongoing costs
| Cost | First Mortgage | Home Equity Loan | HELOC |
|---|
| Annual fee | None | None | $0–$100/year (some lenders) |
| Penalty for early repayment | IRD or 3-month interest | Usually 3-month interest | None (fully open) |
| Discharge fee | $200–$400 | $200–$400 | Included in mortgage discharge |
Readvanceable mortgages: the hybrid option
A readvanceable mortgage combines a regular mortgage with a HELOC under one registered charge. As you pay down mortgage principal, that amount automatically becomes available in your HELOC.
How readvanceable mortgages work
| Component | How It Works |
|---|
| Mortgage portion | Standard amortized payments, fixed or variable |
| HELOC portion | Grows as mortgage shrinks; accessible anytime |
| Total registered amount | Up to 80% LTV |
| HELOC cap | Up to 65% of home value |
Example: $500,000 home, 80% LTV readvanceable
| Year | Mortgage Balance | HELOC Available | Total Registered |
|---|
| Year 0 | $400,000 | $0 | $400,000 |
| Year 3 | $365,000 | $35,000 | $400,000 |
| Year 5 | $340,000 | $60,000 | $400,000 |
| Year 10 | $275,000 | $125,000 | $400,000 |
| Year 15 | $195,000 | $205,000 | $400,000 |
Popular readvanceable products
| Product | Lender | Key Feature |
|---|
| Manulife One | Manulife Bank | All-in-one account; deposits offset mortgage balance daily |
| All-In-One | National Bank | Chequing account + mortgage + HELOC integrated |
| STEP | Scotiabank | Multi-segment; separate fixed/variable portions |
| Home Power Plan | TD | Mortgage + HELOC under one collateral charge |
| Homeline Plan | BMO | Combined mortgage + line of credit |
When to use each product
| Your Situation | Best Product | Why |
|---|
| Buying a home | First mortgage | Lowest rate, longest amortization, insurable |
| One-time large renovation ($40K+) | Home equity loan | Fixed rate, fixed payments, predictable cost |
| Ongoing renovation or uncertain costs | HELOC | Draw as needed, only pay interest on what you use |
| Consolidating high-interest debt | HEL or HELOC | Either works; HEL provides payment discipline |
| Investment strategy (Smith Manoeuvre) | Readvanceable mortgage | HELOC grows as mortgage shrinks; interest may be tax-deductible |
| Emergency fund access | HELOC | Available but doesn’t cost anything until drawn |
| Want lowest possible rate | First mortgage (refinance) | First-position rates are always lowest |
| Need money fast ($10K–$25K) | HELOC (if already set up) | Instant access; no new application needed |
| Bad credit, need equity access | B-lender HEL | More options than HELOC for lower credit scores |
Risks by product
| Risk | Mortgage | HEL | HELOC |
|---|
| Rate shock | At renewal (every 1–5 yrs) | Low (fixed rate) | High (rate changes with prime) |
| Over-borrowing | Low (fixed amount) | Low (fixed amount) | High (revolving temptation) |
| Payment discipline | Built-in (amortized) | Built-in (amortized) | Low (interest-only minimum) |
| Breaking penalty | Can be significant (IRD) | Usually moderate (3-month) | None |
| Home at risk | Yes | Yes | Yes |
Related pages
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