Refinancing vs HELOC Choosing the Right Option

If you’re a homeowner looking to access the equity you’ve built in your property, you have two main options: refinancing your mortgage or obtaining a Home Equity Line of Credit (HELOC). Both allow you to tap into your home equity, but they work very differently and suit different situations.

What Is Refinancing

Refinancing replaces your existing mortgage with a new, larger mortgage. You receive the difference between your old mortgage balance and the new mortgage as cash (or direct payment to debts you’re consolidating).

Refinancing Characteristics:

Lump sum access: You get all the equity at once
Fixed or variable rate: Choose your rate type like a regular mortgage
Structured repayment: Regular mortgage payments on the full amount
Maximum 80% LTV: You can borrow up to 80% of your home’s value

What Is HELOC?

A HELOC is a revolving line of credit secured against your home. You can draw funds as needed up to your credit limit, repay, and draw again — similar to a credit card but with much lower interest rates.

HELOC Characteristics:

Flexible access: Draw funds only when you need them
Interest-only option: You can pay just interest on what you’ve borrowed
Variable rate: HELOCs are typically variable rate products
Maximum 65% LTV: Standalone HELOC limit is lower than refinancing

80%

Max LTV refinance

65%

Max standalone HELOC

80%

Combined mortgage + HELOC

When to Choose Refinancing

Refinancing makes sense when:

You know exactly how much you need: For a specific renovation project with a fixed bid
You prefer payment certainty: Regular scheduled payments help you budget
You’re consolidating debt: Rolling high-interest debt into your mortgage works best with forced repayment
Interest rates are favourable: You might also improve your current mortgage rate

When to Choose a HELOC

A HELOC makes sense when:

You need ongoing access to funds: For phased renovations or as an emergency fund
You’re not sure how much you’ll need: Draw only what you use
You’re using funds for investment: Interest on a HELOC used for investment may be tax-deductible (consult your accountant)
You want flexibility: Pay down, draw again without reapplying

💡 The Hybridge Approach

Many lenders offer a readvanceable mortgage. This combines a traditional mortgage portion with a HELOC portion. As you pay down your mortgage, your HELOC limit increases — giving you access to your equity without refinancing each time.

Understanding the Costs

Refinancing Costs:

Legal fees ($800-$1,500)
Appraisal fee ($300-$500)
Potential prepayment penalty on existing mortgage (varies significantly)
Discharge fee from current lender ($200-$400)

HELOC Costs:

Legal fees (often similar to refinancing)
Appraisal fee ($300-$500)
Some lenders charge annual fees
Setup fees (often waived)

The biggest cost difference often comes from prepayment penalties. If you’re mid-term on a fixed-rate mortgage, the penalty to refinance could be substantial. In that case, adding a HELOC without breaking your mortgage might be more economical.

Elevation Mortgage
INDEPENDENT MORTGAGE BROKERS · LICENSED AB & BC

Julie & Andy Jeffery — independent mortgage brokers serving Calgary, Nelson BC,
and clients across Alberta and British Columbia.