Both HELOCs and refinancing let you access home equity, but they work very differently. Choosing the right one depends on how you plan to use the money and your overall financial strategy. Here's how to decide.
Quick Comparison
| Feature | HELOC | Refinance |
|---|---|---|
| Access | Revolving credit line | Lump sum |
| Payment | Interest-only available | Principal + interest |
| Rate | Usually variable | Fixed or variable |
| Flexibility | Borrow and repay as needed | One-time access |
| Costs | Lower upfront | Higher (legal, appraisal) |
How a HELOC Works
A Home Equity Line of Credit is revolving credit secured by your home:
- Borrow up to a set limit (typically 65% of home value)
- Pay interest only on what you use
- Repay and re-borrow as needed
- Usually variable rate
Best for:
- Ongoing expenses (renovations over time, education)
- Emergency funds
- Uncertain amounts needed
- Those who want flexibility
How Refinancing Works
Refinancing replaces your mortgage with a new one:
- Access up to 80% of home value
- Receive lump sum at closing
- Fixed monthly payments (principal + interest)
- Fixed or variable rate options
Best for:
- Large, one-time needs
- Debt consolidation
- Locking in a rate
- Predictable payment preferences
Explore Both Options
Not sure which is right for you? Get personalized advice based on your specific situation and goals.
Cost Comparison
HELOC Setup Costs
- Typically minimal or $0
- Some annual fees ($25-100)
- May require home appraisal
Refinancing Costs
- Legal fees: $1,000-2,000
- Appraisal: $300-500
- Discharge fee: $200-350
- Possible penalty if breaking early
The Hybrid Option: Readvanceable Mortgage
Some products combine mortgage and HELOC:
- As you pay down your mortgage, HELOC limit increases
- Access more equity over time without refinancing
- One product, two functions
Ask your broker about readvanceable mortgage options.
Tax Considerations
Interest deductibility:
- Investment purposes: Interest may be tax-deductible
- Personal use: Generally not deductible
- Consult a tax professional for your specific situation
Using borrowed funds for investments (like rental properties) can make the interest tax-deductible.
FAQ
Q: Can I have both a HELOC and mortgage?
A: Yes. Many homeowners have their primary mortgage plus a HELOC. Combined, they typically can't exceed 80% of your home's value.
Q: Which has lower interest rates?
A: HELOCs often have higher rates than refinanced mortgages, but you only pay on what you use.
Q: Can I convert my HELOC to a mortgage?
A: Yes. You can "segment" HELOC balances into fixed-rate portions at most lenders.
Q: What if I only need money occasionally?
A: HELOC is better—you only pay interest when you actually borrow.
What's Next
Discuss your options with our team. We'll help you determine whether a HELOC, refinance, or combination makes most sense for your goals.
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Contact us today for personalized mortgage advice and competitive rates.
