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HELOC vs Refinance in Canada: How the Two Ways to Tap Home Equity Compare

Updated

A HELOC and a refinance are two ways to borrow against a home you already own. A home equity line of credit (HELOC) gives you a revolving limit to draw on as needed; a refinance replaces your mortgage with a larger one and pays out the difference as a lump sum. This page compares them on structure, rate, limits, qualifying and cost. It is part of WealthNorth’s refinancing and home equity guide; how to refinance your mortgage walks through the refinance process, and the HELOC calculator estimates a HELOC limit.

Side-by-side comparison

FeatureHELOCRefinance
What you getA revolving credit limit: draw, repay and draw againA new, larger mortgage; the difference is paid out once
RateMost are variable, typically based on the lender’s prime rate (FCAC)Fixed or variable, for the term you choose
PaymentsInterest only, or principal and interest, as the lender requires (FCAC)Regular principal and interest over the new amortization
Interest charged onOnly the amount drawn, from the day it’s drawnThe whole new mortgage balance
Repaying earlyFCAC: you can make payments or repay the balance at any timeA closed mortgage can carry a prepayment penalty (below)
Rate changesFCAC: the lender may change the rate at any time, with written noticeFixed for the term on a fixed-rate mortgage
LimitSet by the federal loan-to-value rules below and your equitySet by the same rule, counting the whole new mortgage
Breaking the current mortgageNot needed for a standalone HELOCNeeded if you refinance before the term ends

The limits in the table come from federal rules: At a federally regulated lender, two limits apply: the revolving part of a HELOC can't exceed 65% of the home's value, and everything borrowed against the home (the mortgage plus the HELOC, or a refinanced mortgage) can't exceed 80% of its value. HELOC room is therefore the lower of 80% of the value minus the mortgage and 65% of the value. Mortgage insurance can't take a refinance above 80%, except a refinance to build secondary suites that takes no equity out. FCAC lists the equity you need: more than 35% for a standalone HELOC and at least 20% for a HELOC combined with a mortgage. The one insured refinance is for adding secondary suites: since January 15, 2025, a home you or a close relative live in can be refinanced with mortgage insurance up to 90% of its as-improved value to build additional units, up to 4 units in total, and the extra money can only pay for the construction, with no equity taken out. Secondary suite incentives covers that program.

How the rates compare

A HELOC rate is the lender’s prime plus or minus a margin it sets for you; a refinance gets a mortgage rate for the term you pick. The Bank of Canada publishes a benchmark for each: the chartered banks’ prime rate was 4.45% as of 2026-09-30, and the average rate on new uninsured fixed-rate mortgages with terms of 5 years and over was 4.49% in July 2026.

Example: $100,000 for one year. A HELOC at prime plus 0.50 (4.95%) is 0.46 percentage points above the average new fixed rate above. Interest-only, the HELOC costs $4,950 a year ($100,000 × 4.95%); $100,000 added to a mortgage at 4.49% over 25 years adds about $553 to the monthly payment, part of which repays principal (payment = $100,000 × i × (1 + i)300 ÷ ((1 + i)300 − 1), where i = (1 + rate ÷ 2)1/6 − 1 is the monthly rate under the semi-annual compounding Canadian fixed-rate mortgages use). Your own rates come from the lenders’ offers.

The rate is only part of the cost. Refinancing a closed mortgage before its term ends can trigger a penalty: Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. The mortgage penalty guide shows how it’s worked out. A HELOC has its own setup costs: FCAC lists appraisal, legal, title search, administration and monthly fees among those a HELOC may involve.

Qualifying

Both go through a full credit approval. FCAC says you must pass a stress test to qualify for a HELOC at a bank, and a refinance is a new mortgage. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. Lenders also check your debt service ratios on the new borrowing, using your current income and debts, so a drop in income since the original mortgage matters for either one.

The risk of a reduced HELOC limit

A refinance fixes the amount you owe on day one. A HELOC limit can change: OSFI’s Guideline B-20 expects federally regulated lenders to review a HELOC’s authorized amount when the home’s value falls materially or the borrower’s finances change materially. FCAC also says a lender may change a HELOC’s rate at any time, giving written notice within 30 days of the change at a federally regulated lender. The HELOC agreement sets out the lender’s other rights. So an unused HELOC isn’t a guaranteed source of funds in an emergency.

Situations each one suits

SituationRefinanceHELOC
A known, one-time amountLump sum at a mortgage rate, repaid on a schedulePossible, but the balance stays until you choose to repay it
Costs spread over months (staged renovation)Interest on the full amount from day oneDraw as bills come in; interest only on what’s drawn
Wanting a fixed rateAvailableThe revolving part is variable at the lenders on the HELOC rates page that state a rate type (Scotiabank’s STEP page doesn’t); some plans, such as TD’s, add an optional term portion that works like a regular mortgage
Mid-term, with a large penaltyPenalty adds to the costNo need to break the mortgage
Wanting forced repaymentBuilt inOnly if the lender requires principal payments or you pay more than an interest-only minimum
Borrowing to investPossible; the invested part must be traceableReadvanceable HELOCs are used for the Smith Manoeuvre

Borrowing to invest

Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. A readvanceable mortgage, a HELOC combined with a mortgage whose available credit grows as you repay the mortgage, lets you re-borrow each payment’s principal and invest it; this is the Smith Manoeuvre. The Smith Manoeuvre guide covers the mechanics and the risks, and using home equity to invest compares HELOC investing with a cash-out refinance. To come out ahead, the after-tax return on the investments has to exceed the after-tax cost of the interest.

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Sources

The figures and rules on this page come from these sources, last checked against them between September 29, 2026 and October 2, 2026. How we check facts.