HELOC vs mortgage refinance in Canada: costs, limits and risks
Quick summary
A HELOC adds a credit line next to the mortgage you already have. A refinance changes the mortgage itself, so you break your current contract. The big question is the cost of breaking it. A closed mortgage normally has a penalty, and it can reach thousands of dollars. Put your own numbers into the HELOC vs mortgage calculator.
Checked November 9, 2026. Main source: FCAC: Breaking your mortgage contract (modified October 15, 2025, read November 9, 2026). See all 4 sources.
Key facts
- HELOC limit
- Up to 65% of your home's value
- Source: FCAC, Home equity lines of credit
- Closed mortgage
- Normally has a prepayment penalty, which can reach thousands of dollars
- Source: FCAC, Breaking your mortgage contract
- Open mortgage
- Usually has no prepayment penalty
- Source: FCAC, Breaking your mortgage contract
HELOC vs refinance side by side
| HELOC | Refinance | |
|---|---|---|
| What it does | Adds a credit line you can borrow from and repay | Replaces your mortgage with a new one |
| Your current mortgage | Stays as it is when the HELOC is standalone | You break the contract, so a penalty can apply |
| Rate | Most HELOCs have a variable rate, often tied to prime | You choose the new mortgage terms |
| Limit | Up to 65% of your home's value | Set by your lender at the time |
| Fees | Can include setup and account fees, ask your lender | Can include penalty, administration, appraisal, reinvestment and discharge fees |
| Risk | Your home is the security | Your home is the security |
Source: FCAC: Home equity lines of credit (modified October 15, 2025, read November 9, 2026). Source: FCAC: Breaking your mortgage contract (modified October 15, 2025, read November 9, 2026).
When a HELOC may suit you better
- You want to keep your current mortgage rate and term.
- You need money over time, not all at once.
- You do not want to pay a penalty for breaking your mortgage.
- FCAC says a standalone HELOC needs more than 35% equity. A HELOC combined with a mortgage needs at least 20%. Banks also apply a stress test.
Source: FCAC: Home equity lines of credit (modified October 15, 2025, read November 9, 2026).
When a refinance may suit you better
- You can get a lower rate, and the savings are bigger than the fees and penalty.
- You want one payment plan, with the new amount paid down on a schedule.
- Your current term is ending soon, so waiting may let you avoid a penalty. Ask your lender.
- FCAC lists the pros as a lower rate, a possibly faster payoff if you keep payments the same, and the chance to lock in a lower rate.
Source: FCAC: Breaking your mortgage contract (modified October 15, 2025, read November 9, 2026).
What breaking your mortgage can cost
FCAC says open mortgages usually have no prepayment penalty, and closed mortgages normally do. It says the penalty can reach thousands of dollars. Ask your lender for the exact amount in writing before you decide.
- FCAC lists possible administration, appraisal, reinvestment and mortgage discharge fees.
- You may need to repay any cash back you got when you took the mortgage.
- If you move to a new lender, you will usually pay setup fees. Some lenders cover part of them.
- Your current lender may offer blend and extend. FCAC says it usually avoids a prepayment penalty but may involve administrative fees.
- FCAC lists the cons of refinancing as fees and penalties that can make it cost more overall, and that you may not qualify under today's rules.
Source: FCAC: Breaking your mortgage contract (modified October 15, 2025, read November 9, 2026). Source: FCAC: Mortgage fees, prepayment penalties (modified October 15, 2025, read November 3, 2026).
Rates
FCAC says most HELOCs have a variable rate, often tied to the lender's prime rate. Lenders must tell you in writing within 30 days of a rate change. A refinance lets you choose a fixed or variable rate on the new mortgage.
We do not list lender rates. They change often and differ by lender and by person. Ask for today's rates, then put them into the calculator.
Source: FCAC: Home equity lines of credit (modified October 15, 2025, read November 9, 2026). Source: FCAC: Breaking your mortgage contract (modified October 15, 2025, read November 9, 2026).
Risks of both
- Your home is the security for both. If you do not repay, the lender may take it.
- A HELOC with interest-only payments never lowers what you owe.
- Easy access to HELOC money can lead to borrowing more than you can repay.
- Rising rates can make a variable payment harder to carry.
Source: FCAC: Home equity lines of credit (modified October 15, 2025, read November 9, 2026).
Try it with your numbers
Use the HELOC vs mortgage calculator for the payment on each option. Use the refinance calculator to see whether the savings beat the fees and penalty.
Questions people ask
Is a HELOC better than refinancing?
Neither is better for everyone. A HELOC can leave your current mortgage as it is, so you may avoid a penalty. A refinance can give you a new rate and one payment plan, but a closed mortgage normally has a penalty.
Do I pay a penalty to open a HELOC?
A standalone HELOC does not change your mortgage, so it does not break your mortgage contract. A HELOC combined with a mortgage can work differently, so ask your lender.
What does it cost to break a mortgage?
FCAC says closed mortgages normally have a prepayment penalty that can reach thousands of dollars, and open mortgages usually do not. Other fees can include administration, appraisal, reinvestment and discharge fees.
What is blend and extend?
FCAC says your current lender may let you extend your term and blend your old rate with the current rate. It usually avoids a prepayment penalty but may involve administrative fees.
How much can I borrow with a HELOC?
FCAC says you can generally borrow up to 65% of your home's value. A standalone HELOC needs more than 35% equity, and a HELOC combined with a mortgage needs at least 20%.
Is a HELOC rate fixed or variable?
FCAC says most HELOCs have a variable rate, often tied to the lender's prime rate.
Can I lose my home?
Yes. Your home is the security for both a HELOC and a mortgage. If you do not repay, the lender may take the home.
How do I compare the two?
Ask your lender for the HELOC rate, the new mortgage rate, the penalty and every fee. Then compare the monthly payment and the total cost with our calculators.