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HELOC vs mortgage refinancing: what you need to know

There are different ways you can get access to your home’s equity. They all can help you improve your finances by allowing you to consolidate your debts, improve your interest rate, reduce your monthly payment, or all of the above. But they have some significant differences between HELOC vs mortgage refinancing, so it’s essential to understand them both before deciding.

A HELOC, or home equity line of credit, can be an excellent way to access additional money to purchase your next home or take advantage of another opportunity.

Perhaps encouraged by the strength of the Canadian housing market over the last decade and the declining interest rates, HELOCs grew to 32% in January 2021.

So, here’s what you need to know about HELOC vs mortgage refinancing when deciding how to fund your next real estate investment.

How to access the equity in your home

There are several different ways for you to access the equity in your home and make improvements around your house or potentially go on a shopping spree. 

But how do you choose between a HELOC vs mortgage refinance or getting another loan? 

There’s no one-size-fits-all answer, but there are some things to consider that will help you sort through which path is best for your situation. If you want to calculate your mortgage payments, you can use these online calculators.

Let’s walk through these options and determine which one is right for you.

1. Refinance with a first mortgage

Refinancing a first mortgage can help lower your monthly payments and reduce interest over time.

Refinancing a first mortgage is most often done by homeowners who have significant equity in their home but still have a high amount of outstanding debt on their primary residence.

A refinance is also sometimes used as a way for homeowners to access some of that equity. You can use it as part of a financing plan for other large expenses, such as college tuition or an addition to your house. 

2. Obtain a home equity line of credit (HELOC)

A home equity line of credit (or HELOC) is a revolving loan based on how much equity you have in your house. 

The HELOC account itself acts as a revolving line of credit, just like your credit card. You can get a maximum line-of-credit amount based on how much equity is in your home. 

The amount that you can borrow from a HELOC will usually be determined by how much money is still owed on your primary mortgage, what interest rate your bank offers, and other terms, including fees and repayment terms.

HELOCs typically have shorter repayment periods than traditional mortgages or home equity loans. 

As long as there’s equity, it’s usually pretty easy to use that money for things like paying off debt, moving expenses or renovating your house.

Why should you refinance your mortgage?

One of the most critical decisions for a homeowner is whether or not to refinance your current home.

This can be a smart move depending on your financial situation, but there are also some reasons why you might not want to do it. 

The decision may not be so easy at first glance, especially when different homeowners face different situations and financial factors.

But if you want to lower the overall costs of your mortgage, then refinancing is a great option.

Here are some benefits regarding refinancing.

Change your existing loan’s rate and/or terms:

This can come in handy if you’re having trouble making your monthly mortgage payments. 

One monthly mortgage payment:

When you refinance, you replace your current mortgage loan with a new one. Thus you only need to worry about making a single payment each month.

Lower your interest rate:

Refinancing means less risk for the lender. So, the interest rates are usually lower on cash-out refinances than second mortgages.

Why should you get a second mortgage?

When it comes to choosing HELOC vs mortgage refinancing, people seem to be confused. Known as a home equity line of credit (HELOC), it’s easy to see why such loans have become popular.

The interest rate is typically lower than that of a credit card or car loan, there are no pre-payment penalties, and they don’t require any regular monthly payments.

Just draw on your HELOC when you need money and repay it as soon as possible so you can get back into good standing with your lender. 

Some benefits of HELOC vs mortgage refinancing include

Lower monthly payments

This is due to lower interest rates and a smaller principal.


You can use it for any purpose, including renovations and improvements to your property that, in turn, increase its value. HELOCs even allow you to defer some payments until after the draw period is over.

Fewer costs

With HELOC vs mortgage refinancing, home equity loan providers usually cover most of the closing costs associated with getting your loan. This can potentially save you lots of money since closing costs for refinances range between 2 – 3% of the total loan value.

Is it better to get a HELOC or refinance?

Whether or not it makes sense to get a HELOC vs mortgage refinance, it depends on your financial situation and needs. The short answer is that there’s no clear-cut answer. 

While many people think that a HELOC and a refinance are basically identical (after all, they both have refinanced in their names), they are different products with different purposes. 

For some people, a HELOC might be a better option; for others, it might make more sense to refinance their current home. The most important thing is figuring out which choice is best for your financial situation and looking at each of these options carefully. So, don’t hesitate to contact an expert today!

We’re happy to help!

If you need more information about the topic or any other questions about home buying mortgages, don’t hesitate to contact us.

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