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If you bought a home in Canada five or ten years ago, you may be sitting on substantial equity. But equity is just numbers on a screen until you access it.
Whether you want to renovate your kitchen, consolidate high-interest credit cards, or buy a rental property, you have two primary ways to turn that equity into cash: a Home Equity Line of Credit (HELOC) or a Cash-Out Mortgage Refinance.
Choosing the wrong one can cost you a penalty fee or leave you paying more interest than necessary. Let's do a direct comparison.
The Core Difference
A Cash-Out Refinance means replacing your current mortgage with a brand new one. If you owe $400k on a house worth $800k, you create a new $500k mortgage. The first $400k pays off the old loan, and you receive the remaining $100k (minus costs). It is a single, usually fixed-rate loan.
A HELOC works like a large revolving credit line secured against your house. You keep your current mortgage exactly as it is, and the lender adds a secondary revolving credit line on top. If you have a $100k HELOC, you don't pay interest until you actually draw the money.
OSFI Limits: How Much Can You Actually Take?
OSFI sets limits on how much you can borrow against your home. Under the rules in effect as of September 2026:
- Refinance Maximum: You can generally borrow up to 80% of your home’s appraised value.
- HELOC Maximum: A revolving HELOC portion cannot exceed 65% of your home’s value (though combined with your mortgage, total debt can reach 80%).
Pros & Cons Comparison Matrix
| Feature | Cash-Out Refinance | HELOC |
|---|---|---|
| Interest Rates | Usually lower (e.g., an illustrative 4.5% fixed) | Higher & variable (e.g., prime + 0.5%) |
| Penalty to Start | High (Requires breaking current mortgage) | Low (Usually just legal/appraisal fees) |
| Repayment Structure | Forced Principal + Interest | Interest-only payments allowed |
When to Choose Which?
Choose a HELOC If:
You have a low interest rate on your main mortgage right now (e.g., you locked in at 3.9% a few years ago). If you refinance, you lose that rate and your entire mortgage resets at current rates. A HELOC lets you keep your existing mortgage untouched. HELOCs also suit home renovations where you need $10k this month, $20k next month, and $15k three months later.
Choose a Refinance If:
Your current mortgage is up for renewal anyway (meaning no breakage penalty). Refinancing gives you a lump sum of cash at a fixed rate. If you need $100k today to buy a rental property, an illustrative 4.5% refinance is usually cheaper than carrying a $100k balance on a 7.2% HELOC — but compare the full costs, including penalties and fees, before deciding.