You’ve been paying down your mortgage for years, your home’s appreciated, and now you need access to some of that equity. The two most common paths are a HELOC (home equity line of credit) and a refinance. They look interchangeable from a distance — both let you borrow against your home — but the mechanics, costs, and best use cases are completely different.
The basics
A HELOCis a revolving line of credit secured by your home. You’re approved up to a maximum (typically up to 65% of your home’s value, with the HELOC + mortgage combined not exceeding 80% LTV). You can borrow, repay, and re-borrow indefinitely. Interest is only charged on the amount you actually have outstanding.
A refinancemeans breaking your current mortgage and replacing it with a new, larger one — with the difference paid out to you in cash at closing. You’re re-amortizing the new balance and paying interest on the full amount from day one.
The interest rate gap
HELOC rates are tied to prime + a spread. As of 2026, prime is 4.45%, and most HELOCs sit at prime + 0.50% (so ~4.95%). They float — if prime moves, your HELOC rate moves.
Refinance rates are full-fledged mortgage rates — whatever a 5-year fixed or variable is going for that day, similar to what you got on your original mortgage. Currently around 4.00–4.30% on insured purchases, slightly higher on uninsured refinances.
So all-in: refinance rates are typically 0.50–1.00% lower than HELOC rates. On large balances over long periods, that gap is meaningful money.
The flexibility gap (HELOC’s advantage)
HELOCs win on flexibility:
- Pay nothing if you don’t draw.A HELOC sits there with a $0 balance until you need it. You can have it “in case” without carrying debt.
- Interest-only payment options.Most HELOCs require only the interest each month, not principal. If you need lower minimum payments, that’s a built-in feature.
- Repay and re-borrow freely.Use it for a renovation, repay it, then later use it again for something else — no new application needed.
- Lower upfront cost.Setting up a HELOC during a regular mortgage transaction often costs $0–$300. Refinances can run $1,500–$3,000 in legal, appraisal, and discharge fees.
When to refinance instead
Refinance is the right call when:
- You know exactly how much you needand you’ll use it all upfront. There’s no benefit to HELOC’s revolving feature if you’re going to draw the full amount day one.
- You’re consolidating high-interest debt. The 0.50–1.00% lower rate adds up quickly on $100K of consolidated credit-card or unsecured-loan debt.
- You want fixed-rate certainty. HELOC rates float; refinance into a 5-year fixed and your payment is locked.
- Your existing mortgage is up for renewal anyway. Refinancing at renewal means no prepayment penalty — usually the cheapest moment to access equity.
When to use a HELOC instead
- Renovation projects where the cost is uncertain. Draw as needed, only pay interest on what you used.
- Investment property down payment. Many investors set up a HELOC and draw on it as opportunities come up.
- Emergency reserves. A HELOC is a no-cost backup line of credit if you have it set up but unused.
- You don’t want to break your current mortgage. If your existing mortgage has 3 years left at a great rate and the prepayment penalty would be punishing, the HELOC route avoids that problem entirely.
The third option: re-advanceable mortgage
Some lenders offer a re-advanceable mortgage— a product that combines a regular mortgage and a HELOC in one. As you pay down the mortgage, the HELOC limit grows in lockstep. Best of both worlds when set up correctly: low refinance-style rates on the mortgage portion, plus access to revolving credit on the HELOC portion as your equity builds.
Worth asking about if you’re due for a renewal or considering refinancing — not every lender offers them and they typically need to be set up at origination.
Tax-deductible interest (an advanced consideration)
Interest on debt borrowed for income-producing purposes (e.g. funding an investment property purchase or qualifying investments) is generally tax-deductible in Canada — whether the borrowing is via HELOC or refinance. If you’re using equity to invest, talk to your accountant before structuring the borrowing — the way the money flows matters for whether the interest qualifies for deduction.
Bottom line
- Need it once, big lump sum, want lower rate → refinance
- Need it intermittently, want flexibility, lower setup cost → HELOC
- Want both → re-advanceable mortgage
Want me to model both options side-by-side for your specific equity position? Send me your current mortgage balance, home value, and what you’re trying to fund — I’ll come back with the cost comparison and the right structure. Reach me here.