What is the difference between a mortgage and a home equity loan?

A mortgage is a loan used to purchase a home and is registered as the first charge on the property title. A home equity loan (HEL) is a separate lump-sum loan secured against the equity you have already built in your home, registered as a second charge. HELs have higher interest rates because the lender is in second position and takes on more risk. Both have fixed payments.

Is a HELOC better than a home equity loan?

It depends on your needs. A HELOC offers flexible, revolving access to funds at a variable rate — you only pay interest on what you draw. A home equity loan gives you a lump sum at a fixed rate with predictable payments. Choose a HELOC for ongoing or uncertain expenses, and a HEL when you know the exact amount you need and want payment certainty.

Can I have a mortgage and a HELOC at the same time?

Yes. Many Canadians have both. A readvanceable mortgage combines a standard mortgage with a HELOC that grows as you pay down the mortgage principal. You can also have a standalone HELOC registered as a second charge behind your first mortgage, as long as the combined loan-to-value (LTV) does not exceed 80%.

What is a readvanceable mortgage?

A readvanceable mortgage combines a traditional mortgage with a HELOC under one registered charge. As you pay down your mortgage principal, that amount becomes available in the HELOC automatically. Products like Manulife One, National Bank All-In-One, and Scotia STEP are readvanceable. This structure is popular for the Smith Manoeuvre tax strategy.

Which has the lowest interest rate — mortgage, HEL, or HELOC?

A first mortgage generally has the lowest rate (4%–5.5% in 2026), followed by a HELOC (prime + 0.50% to prime + 2.00%, roughly 5.45%–7.00%), then a home equity loan (6%–8.50%). The mortgage rate is lowest because the lender has first priority on the property. HELOCs are variable, so their effective rate changes with the Bank of Canada overnight rate.

Mortgage vs Home Equity Loan vs HELOC: Which Is Right for You?

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

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