A HELOC (home equity line of credit) is a revolving credit line secured by your home, letting you borrow and repay repeatedly up to your approved limit. A cash-out refinance replaces your existing mortgage with a new, larger one, giving you the difference in a lump sum. Both let you tap home equity, but a HELOC offers ongoing flexible access while a refinance gives you a single fixed amount rolled into a new mortgage. Refinances are always uninsured mortgages requiring at least 20% equity.
| Feature | HELOC | Cash-Out Refinance |
|---|---|---|
| Structure | Revolving credit line, borrow and repay as needed | One-time lump sum, replaces existing mortgage |
| Maximum borrowing | Up to 65% of appraised value alone, or up to 80% combined with an existing first mortgage | Up to 80% of appraised value (20% equity must remain) |
| Insurable through CMHC/Sagen/Canada Guaranty | No | No, refinances are always uninsured |
| Subject to the stress test | Yes, at federally regulated lenders | Yes, always |
| Repayment structure | Interest-only or flexible payments on amount drawn | Fixed principal and interest payments like a standard mortgage |
| Rate type | Typically variable, tied to prime | Fixed or variable, your choice at renewal |
| Best for | Ongoing or uncertain borrowing needs, like a renovation done in stages | One-time larger need, like debt consolidation or a lump sum purchase |
The verdict
A HELOC tends to suit borrowers who want flexibility, such as drawing funds gradually for a renovation or keeping a credit line available, since you only pay interest on what you use. A cash-out refinance tends to suit borrowers who need a specific lump sum right away and prefer the predictability of fixed principal and interest payments. Both require sufficient home equity and typically involve requalification and the stress test at federally regulated lenders. Speak with a mortgage broker to compare real numbers side by side.
Have questions about your situation? An advisor can walk you through it.