Both home equity loans and HELOCs let you borrow against your home's value, but they work very differently. Choosing the wrong one could cost you thousands in unnecessary interest — or leave you with a payment structure that doesn't match your needs.
Here's a clear, unbiased comparison to help you decide which option makes sense for your situation.
The Core Difference
A home equity loan gives you a fixed lump sum with fixed payments — like a second mortgage. A HELOC (Home Equity Line of Credit) gives you a revolving credit line you can draw from as needed — like a credit card secured by your home.
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Funds | Lump sum at closing | Draw as needed up to limit |
| Rate type | Fixed | Variable (Prime + margin) |
| Payments | Fixed principal + interest | Interest-only minimum, variable |
| Reusable? | No — one-time borrowing | Yes — repay and re-borrow |
| Best for | Known, one-time expense | Ongoing or uncertain needs |
| Typical term | 1–25 years | Open-ended (review every 5 years) |
| Rate range | 5.49%–8.99% | Prime + 0.5% (4.95%) — some lenders offer Prime (4.45%) when bundled with mortgage |
When to Choose a Home Equity Loan
A home equity loan makes sense when you:
Need a Specific Amount
You know exactly how much you need — like a $80,000 kitchen renovation or a $50,000 debt consolidation. No guessing, no temptation to over-borrow.
Want Payment Certainty
Fixed rate + fixed payment = predictable budgeting. Your payment stays the same regardless of what the Bank of Canada does with interest rates.
Have Challenged Credit
Home equity loans are available from B-lenders and private lenders with lower credit requirements than HELOCs, which typically require 650+ credit scores.
Are Consolidating Debt
If you're rolling high-interest debt into one payment, a fixed home equity loan prevents the temptation to re-borrow (a common HELOC trap).
When to Choose a HELOC
A HELOC is better when you:
Need Ongoing Access to Funds
Phased renovations, business expenses, or investment opportunities that arise over time — a HELOC lets you draw what you need, when you need it.
Want the Lowest Possible Rate
HELOC rates are typically lower than home equity loan rates because they're based on the prime rate. With Prime at 4.45% in February 2026, most bank HELOCs sit at 4.95% (Prime + 0.5%), and some lenders offer Prime flat when you bundle a HELOC with your mortgage.
Value Flexibility
You only pay interest on what you've actually borrowed. If your HELOC limit is $200,000 but you've only drawn $50,000, you only pay interest on $50,000.
Plan to Invest (Smith Manoeuvre)
HELOCs are the standard vehicle for the Smith Manoeuvre and cash damming strategies because of their revolving nature.
Learn about the Smith Manoeuvre
The HELOC Trap: A Warning
HELOCs come with a risk that home equity loans don't: the temptation to treat them like free money. Because you can re-borrow as you pay down, many Canadians never actually reduce their HELOC balance.
Warning signs you might be in a HELOC trap:
- Your HELOC balance hasn't decreased in over a year
- You're making interest-only payments
- You're using the HELOC for everyday expenses
- Your available credit keeps getting reused
If discipline is a concern, a home equity loan's fixed payments and one-time borrowing structure eliminates this risk entirely.
Can You Have Both?
Yes. Some homeowners combine both products — a home equity loan for a specific purpose (like debt consolidation) plus a smaller HELOC for emergencies or opportunities. As long as your total borrowing stays within 80% LTV, this is entirely possible.
The Bottom Line
Choose a home equity loan if you want certainty — a fixed amount, fixed rate, and a clear payoff date. Choose a HELOC if you want flexibility and are confident you can manage revolving credit responsibly.
Either way, comparing rates from multiple lenders through a broker ensures you get the best deal.
Back to our complete home equity loans guide
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