You've built equity in your home—now you want to access it. The two main options are a Home Equity Line of Credit (HELOC) and refinancing your mortgage. The right choice depends on how much you need, what you're using it for, and your financial priorities.
Understanding Your Options
What Is a HELOC?
A Home Equity Line of Credit is a revolving credit line secured against your home's equity.
Key features:
- Borrow up to 65% of home value (minus mortgage)
- Interest-only payments on what you use
- Revolving—repay and borrow again
- Variable rate (typically prime + 0.5%)
What Is Refinancing?
Refinancing means replacing your current mortgage with a new, larger mortgage and taking the difference as cash.
Key features:
- Access up to 80% of home value
- Fixed monthly payments (principal + interest)
- One-time access to funds
- Fixed or variable rates available
Head-to-Head Comparison
| Feature | HELOC | Refinance | --------- | ------- | ---------- | Maximum LTV | 65% | 80% | Access to funds | Revolving | One-time lump sum | Payment type | Interest-only minimum | Principal + interest | Rate type | Variable (usually) | Fixed or variable | Setup costs | Lower ($0-$1,000) | Higher ($2,000-$5,000) | Best for | Ongoing/uncertain needs | Large, defined amount |
Find Your Best OptionContact our team for a personalized analysis of HELOC vs. refinance based on your specific situation and goals. When to Choose a HELOCIdeal Scenarios1. Ongoing or uncertain funding needs
2. You want flexibility
3. You don't want to disturb a good mortgage rate
HELOC Cost ExampleScenario: $100,000 HELOC at prime + 0.5% |
Prime Rate | HELOC Rate | Monthly Interest (on $50K used) | ------------ | ------------ | -------------------------------- | 5.00% | 5.50% | $229 | 5.50% | 6.00% | $250 | 6.00% | 6.50% | $271 |
When to Choose RefinancingIdeal Scenarios1. You need a large, specific amount
2. You want payment certainty
3. You can improve your rate anyway
Refinance Cost ExampleScenario: Increase mortgage from $300,000 to $400,000 at 4.5% |
Cost Component | Amount | ---------------- | -------- | Legal fees | $1,500 | Appraisal | $400 | Discharge fees | $350 | Registration | $200 | Penalty (if breaking early) | $0 - $15,000 | Total costs | $2,450 - $17,450 |
The Hybrid Option: Readvanceable MortgageSome lenders offer mortgages with built-in HELOCs: How it works:
Example:
Tax ConsiderationsInterest deductibility depends on use of funds: |
Purpose | Tax Deductible? |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Home renovation | No | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt consolidation (personal) | No | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment (income-producing) | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental property down payment | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business investment | Yes |
Important: Keep funds separate and maintain clear records if claiming deductions.
Decision Framework
Choose HELOC if:
- [ ] You need ongoing access to funds
- [ ] You're not sure exactly how much you need
- [ ] You want to keep your existing mortgage rate
- [ ] You can handle variable rate risk
- [ ] You have discipline to repay
Choose Refinance if:
- [ ] You need a specific, large amount
- [ ] You want predictable fixed payments
- [ ] Your current rate is not competitive
- [ ] You want forced equity building
- [ ] You need maximum LTV (80% vs 65%)
FAQ
Q: Can I have both a HELOC and refinance?
A: Yes—you can refinance your mortgage and also set up a HELOC, as long as combined LTV doesn't exceed limits.
Q: Which has lower interest rates?
A: Typically refinanced mortgages have lower rates, but HELOCs offer interest-only flexibility.
Q: Is there a penalty for paying off a HELOC early?
A: Generally no—HELOCs are open products with no prepayment penalties.
Q: Can I convert my HELOC to a fixed-rate mortgage?
A: Many readvanceable products allow you to "lock in" portions of your HELOC into fixed-rate segments.
Q: Which affects my credit score more?
A: Large HELOC balances can impact your debt service ratios. Refinanced mortgages are viewed more favorably as secured, amortizing debt.
What's Next
Not sure which option fits your situation? Talk to our team. We'll analyze your current mortgage, equity position, and goals to recommend the best path forward.
Find Your Best Equity Access Option
Our team will compare HELOC and refinance options based on your specific situation.
