Mortgages vs HELOCs in Canada

Mortgages and home equity lines of credit (HELOCs) are two popular options for financing a home in Canada. Both options provide access to funds for home purchases or renovations, but their differences make them suitable for different financial needs and situations.

A mortgage is a loan used to purchase a home or refinance an existing one. Mortgages usually have a fixed interest or variable rate and a fixed term. The typical amortization is usually 25 or 30 years, with regular payments to pay off the loan and interest over time.

A HELOC, on the other hand, is a line of credit that is secured by the equity in your home. The borrower has access to the full line of credit and can use it as needed, paying it back and using it again as required. The interest rate on a HELOC is variable, and only the interest is required as repayment each month.

The main difference between a mortgage and a HELOC is how they are structured and used. A mortgage is a long-term loan used to purchase or refinance a home, while a HELOC is a revolving line of credit that can be used for various purposes, including home improvements, debt consolidation, or other financial needs. Also, for a HELOC, the maximum amount you can borrow against your property value is 65%. ( As of March 2023)

When deciding between a mortgage and a HELOC, it is essential to consider your financial situation and goals. A mortgage may be the better option to purchase a home or refinance your existing mortgage. A HELOC may be the better choice if you need access to funds for home improvements or other financial needs.

It is also essential to consider each option’s interest rate and terms. Mortgages usually have a fixed interest rate, which can be beneficial for budgeting and predicting your monthly payments. Conversely, a HELOC usually has a variable interest rate, which can increase or decrease over time.

To summarize, both mortgages and HELOCs have unique advantages and disadvantages, and the best option for you depends on your financial situation and goals. Before making a decision, it is essential to research, compare the interest rates and terms of each option, and consult with a mortgage professional to ensure that you are making the best decision for your specific needs.