Both borrow against the equity in your home, but they behave very differently. Here is how the limits, the costs and the repayment compare, and which job each one actually suits.
Both let you borrow against the equity in your home, and that is where the similarity ends. A refinance and a home equity line of credit are different instruments, and choosing between them depends less on the rate than on what you intend to do with the money.
How much each one allows
Two ceilings apply in Canada. A HELOC on its own tops out at 65 percent of your home's value, while a mortgage and a HELOC combined cannot exceed 80 percent. The tighter of the two is what binds, so on most homes with a mortgage outstanding, the 80 percent figure decides your number.
A lump sum against a credit limit
Refinancing replaces your existing mortgage with a larger one and pays the difference out in a single amount. After that it behaves like any mortgage: a set rate, a set payment, and a fixed amortization steadily reducing the balance.
A HELOC is revolving. It is approved once and sits unused until you draw on it, you pay interest only on what you have actually taken, and you can repay and redraw without applying again.
What each tends to cost
A refinance usually carries the lower rate, because it is a mortgage. Breaking mid-term brings a prepayment penalty along with legal and appraisal costs, so the saving has to outrun those before it is worth doing. Our guide to when refinancing makes sense works through that arithmetic.
A HELOC generally sits at a higher rate, tied to prime and therefore variable. Setting one up alongside an existing mortgage avoids a break penalty entirely. Both are stress tested.
Which suits which job
A single known cost, such as consolidating debt or a defined renovation, suits a refinance. Spending that arrives in stages, or that you may not need at all, suits a line of credit. The honest caution with a HELOC is that interest-only payments make it easy to carry a balance for years without the principal moving.
Price both before deciding. The refinance calculator is a sensible start, and Deepinder Sidhu can set the options side by side.
