Both a cash-out refinance and a HELOC let you access the equity in your home. The key difference is in structure, and that structure matters depending on what you’re trying to do.
Understanding which product fits your situation can save you money and give you a lot more flexibility in how you move forward.
What a Cash-Out Refinance Does
A cash-out refinance replaces your existing mortgage with a new, larger one. You walk away with the difference in cash. So if you owe $300,000 on a home worth $650,000 and you refinance for $450,000, you receive $150,000 in cash to use however you choose.
Your entire mortgage rolls into one product with a single interest rate and a single monthly payment. The process is similar to getting a mortgage in the first place, and it typically comes with a fixed rate and fixed amortization schedule.
What a HELOC Does
A HELOC sits alongside your existing mortgage as a separate product. You get approved for a credit limit based on your equity, and you draw from it as needed. You only pay interest on what you’ve actually used, and you can repay and redraw multiple times over the life of the product.
The rate on a HELOC is typically variable, which means it moves with the Bank of Canada’s policy rate. Payments fluctuate accordingly.
When a Cash-Out Refinance Makes More Sense
If you know the exact amount you need, want a fixed rate, and prefer the simplicity of a single payment, a cash-out refinance often makes more sense. It’s also the better option when your current mortgage rate is already coming up for renewal, since you’re not breaking anything early.
When a HELOC Makes More Sense
If you’re not sure exactly how much you’ll need, or if you want ongoing access to funds over time, a HELOC gives you that flexibility. It’s also better suited to situations where you expect to repay the borrowed amount relatively quickly, since you won’t carry a large balance at the variable rate for long.
The Honest Answer
The right choice depends on your current mortgage terms, your goals, and your financial situation. A mortgage agent can model both options with your actual numbers so you can see which one costs less and fits better.
Lora Fenn is a Barrie mortgage agent who specializes in home equity strategies. Visit lorafenn.ca to start the conversation.
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