Overview
In Canada, equity lines of credit (HELOCs) and mortgages are both secured by your home but serve different financial purposes and have distinct features. Choosing between them depends on whether you’re looking to purchase or refinance a home (mortgage) or access your existing home equity for flexible borrowing (HELOC).
Key Differences: HELOC vs. Mortgage
| Feature | Mortgage | HELOC (Home Equity Line of Credit) |
|---|
| Primary Purpose | Buy or refinance a home | Borrow against home equity for various expenses |
| Loan Structure | Lump sum with set repayment schedule | Revolving credit (borrow, repay, re-borrow) |
| Interest Rate | Fixed, variable, or adjustable | Usually variable, tied to prime rate |
| Repayment | Regular (monthly/bi-weekly) payments on principal + interest | Flexible; interest-only minimum, repay principal anytime |
| Borrowing Limit | Up to 80% of home’s value | Up to 65% of home’s value (can be combined up to 80%) |
| Usage Flexibility | Must be used for property purchase/refinance | Can be used for any purpose |
| Access to Funds | Lump sum at closing | Withdraw as needed, up to limit |
| Risk of Overspending | Lower (scheduled payments) | Higher (easy access may encourage borrowing more) |
Detailed Comparison
Mortgage
- Purpose: Primarily for purchasing or refinancing a property.
- Repayment: Fixed schedule, typically over 25 or 30 years.
- Interest: Can be fixed, variable, or adjustable; predictable payments with fixed rates.
- Maximum Loan-to-Value (LTV): Up to 80% of the property’s appraised value.
- Best For: Long-term financing with structured payments.
Home Equity Line of Credit (HELOC)
- Purpose: Access cash using the equity built up in your home.
- Repayment: Flexible, usually interest-only minimum payments; pay down principal at any time.
- Interest: Variable, typically prime plus 0.5–2%; only pay interest on amount used.
- Maximum LTV: Up to 65% of home’s value for a standalone HELOC; can be combined with a mortgage for up to 80% (e.g., mortgage 15%, HELOC 65%).
- Accessing Funds: Withdraw money as needed via online banking, debit card, or cheques.
- Best For: Flexible access to funds for renovations, investments, emergencies, or large expenses.
Risks and Considerations
- Mortgages: Lower risk of overspending due to structured payments.
- HELOCs: Increased risk of accumulating debt because of easy access and flexible repayment. Variable interest rates can rise if the bank’s prime rate increases, affecting your borrowing costs.
Provincial Variations
- Regulations and terms can vary slightly by province, especially regarding registration and disclosure requirements.
- Always check with a local lender or mortgage professional for province-specific rules.
Major Canadian Bank Offerings
Most major banks—including RBC, TD, Scotiabank, BMO, and CIBC—offer both traditional mortgages and HELOCs. Many also offer a “readvanceable mortgage” product, which combines a mortgage and HELOC under a single product, allowing you to access more equity as you pay down your mortgage.
Government Programs & First-Time Homebuyers
- First-time buyer programs (e.g., First-Time Home Buyer Incentive, Home Buyers’ Plan) are generally applicable to mortgages, not HELOCs.
- HELOCs are not typically used for the initial purchase, but can be valuable later for renovations or investments once equity is built.
Actionable Next Steps
- Compare rates and terms: Use a comprehensive platform like theratefinder to compare mortgage and HELOC rates from top Canadian lenders and find the best fit for your situation.
- Assess your goals: If you need structured financing to buy or refinance a home, a mortgage is likely best. For flexible access to your home’s equity, consider a HELOC—but use caution to avoid overspending.
- Start your application: For personalized advice and competitive rates, begin your application at theratefinder.ca/onboarding.
Summary
- Choose a mortgage for structured, long-term home financing.
- Opt for a HELOC for flexible borrowing against your home’s equity, but be mindful of variable rates and the potential to accumulate debt.
- Use theratefinder to compare Canadian mortgage and HELOC options and access a streamlined application process for residential, commercial, or construction loans.