A HELOC and a cash-out refinance both let you turn home equity into usable cash, but they are structured differently. A HELOC (home equity line of credit) is a revolving credit line secured against your home, while a refinance replaces your entire mortgage with a new, larger one. The right choice depends on how much equity you have, how you plan to use the funds, and whether you want payment flexibility or a fixed, predictable structure.
The core difference between a HELOC and a refinance
A HELOC is revolving credit secured by your home, similar in structure to a credit card but backed by real property. On its own, a HELOC is typically available up to 65% of your home's appraised value. Combined with an existing first mortgage, total borrowing against the home, mortgage plus HELOC, can reach up to 80% of the appraised value. You draw funds as needed and pay interest only on the amount outstanding. A refinance is different. It replaces your existing mortgage entirely with a new one, often at a higher balance if you're pulling out equity. In Canada, refinances are always treated as uninsured, conventional mortgages. That means you need at least 20% equity remaining in the home, and the new mortgage cannot be insured by CMHC, Sagen, or Canada Guaranty, regardless of how much equity you're accessing.
When a HELOC makes more sense
A HELOC tends to fit situations where you don't need all the funds at once, such as a renovation completed in stages, an emergency fund, or ongoing expenses that come up over time. Because you only pay interest on what you draw, it can be a lower-cost option when your borrowing needs are irregular or spread out. A HELOC also stays in place after you use it, so you can repay what you've drawn and access those funds again later without reapplying for a new loan each time.
When a cash-out refinance makes more sense
A cash-out refinance often makes more sense when you want a single lump sum, want to lock in a new rate and term across your entire mortgage balance, or want to consolidate higher-interest debt into one predictable payment. Because it replaces the whole mortgage, a refinance also gives you the chance to renegotiate your rate and amortization on the full balance, not just the new funds, which can be useful if your existing mortgage term is close to renewal anyway.
The stress test applies to both, but not identically
The OSFI mortgage stress test requires you to qualify at the greater of your contract rate plus 2%, or a 5.25% benchmark rate. This test applies to refinances at federally regulated lenders, and it applies to most HELOC applications at federally regulated lenders as well. Because a refinance and a HELOC both add to your secured debt against the home, lenders need to confirm you can handle the higher qualifying rate, not just the rate you're actually offered. This is separate from the rate itself, it's a qualification hurdle that determines how much you're approved to borrow in the first place.
Flexibility versus predictability
A HELOC gives you flexibility: draw funds when you need them, repay and redraw, and pay interest only on the balance you use. A refinance gives you predictability: a fixed repayment schedule, a set amortization, and one consolidated payment. Neither is inherently better. The right fit depends on whether your cash flow needs are variable, or you'd rather lock in one structure and know exactly what you owe each month for the life of the term.
How a RECA-licensed broker helps you decide
Comparing a HELOC to a refinance means weighing lender-specific rates, fees, any prepayment penalty on your existing mortgage, and how each option affects your long-term equity position. In Alberta, mortgage brokerages and brokers are regulated by the Real Estate Council of Alberta (RECA) under the Real Estate Act. Working with a RECA-licensed broker means working with someone held to provincial licensing standards, who can run the numbers on both paths side by side against your actual mortgage and goals, rather than a single lender's product menu.
Have questions about your situation? An advisor can walk you through it.