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 Option
Contact our team for a personalized analysis of HELOC vs. refinance based on your specific situation and goals.
When to Choose a HELOC
Ideal Scenarios
1. Ongoing or uncertain funding needs
- Home renovations (draw as projects progress)
- Emergency fund backup
- Education expenses over multiple years
2. You want flexibility
- Only pay interest on what you use
- Repay and borrow again without reapplying
- No penalty for not using the full amount
3. You don't want to disturb a good mortgage rate
- Keep your existing low-rate mortgage
- Add HELOC as separate product
- Avoid refinance penalties
HELOC Cost Example
When to Choose Refinancing
Ideal Scenarios
1. You need a large, specific amount
- Major renovation with defined budget
- Debt consolidation (pay off everything at once)
- Investment opportunity
2. You want payment certainty
- Fixed rate locks in your cost
- Amortized payments build equity
- Predictable monthly budgeting
3. You can improve your rate anyway
- Current rate is higher than today's rates
- Penalty is reasonable or waived
- Net benefit after costs
Refinance Cost Example
| 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 Mortgage
Some lenders offer mortgages with built-in HELOCs:
How it works:
- Mortgage + HELOC combined up to 80% LTV
- As you pay down mortgage, HELOC room increases
- Best of both worlds
Example:
- Home value: $800,000
- Total available: $640,000 (80%)
- Mortgage portion: $500,000
- HELOC room: $140,000
- As mortgage decreases, HELOC room grows
Tax Considerations
| 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.
