HELOC vs Mortgage: Choosing the Right Tool
When a HELOC beats a refinance, and how to combine them for maximum flexibility.
How a HELOC actually works
A Home Equity Line of Credit is revolving credit secured against your home. You're approved for a maximum limit (up to 65% of value, or up to 80% combined with your mortgage), draw what you need, pay interest only on what you've drawn, and re-borrow as you pay down. Rates are prime-based and variable.
When a HELOC is better than a refinance
If your existing mortgage rate is favourable, a HELOC lets you access equity without breaking that mortgage. You avoid the break penalty entirely. HELOCs also offer maximum flexibility for staged projects, investment opportunities, or emergency reserves.
When a refinance wins
If you need a large lump sum and HELOC rates are well above fixed-mortgage rates, a refinance often costs less overall. Refinancing also lets you reset amortization to lower monthly payments — something a HELOC doesn't do.
Readvanceable mortgages: the hybrid
Readvanceable mortgages combine a traditional amortizing mortgage with a HELOC limit that grows automatically as you pay down principal. This is the structure many sophisticated borrowers (and the 'Smith Manoeuvre' crowd) prefer.
HELOC qualification rules
HELOCs are stress-tested at the greater of 5.25% or contract + 2%, just like mortgages. Income, credit, and total debt-servicing all factor into your approved limit.
Have questions about your situation?
Every mortgage file has its own story. A 15-minute call with Jay is enough to know your real options.