A limit you can reuse, or a mortgage you replace
A home equity line of credit is a revolving secured limit registered against your home. You draw what you need, repay it, and the unused room becomes available to draw again. A mortgage refinance does something different: it replaces your existing mortgage with a new one, and the difference between the old balance and the new mortgage amount is paid to you as cash.
Almost everything else follows from that one structural difference — how each option is priced, how it is repaid, and how it shows up on your credit report. loanmoose.ca is not a lender, does not make credit decisions, and does not set rates or terms.
What each option actually is
A home equity line of credit is a secured revolving account. It is registered against the property, often behind an existing mortgage, and it carries a limit rather than a fixed balance. You control the timing of the draws, because nothing is advanced until you take it. Many are also readvanceable, meaning that principal you repay becomes room you can borrow again.
A refinance is a new first mortgage that pays off the old one. If the property supports a larger mortgage than the balance you currently owe, you receive the remainder. The old mortgage is discharged and replaced, so the loan you had is gone and what you now have is a single amortized obligation with one scheduled payment.
That is why the line of credit vs mortgage loan comparison is not really a comparison of two prices for the same product. It is a comparison of two credit structures, and the more suitable structure depends on whether your need is ongoing or one-time.
How each option is priced
Refinances are priced as mortgages. If you take a fixed rate, remember that Canadian fixed-rate mortgages are compounded semi-annually by law, so a quoted rate is not the same as an effective annual rate. That gap matters when you compare a fixed mortgage offer against a variable line of credit, because the two are not stated on the same basis.
Home equity lines of credit are generally priced as variable-rate products tied to a lender's prime rate, with each lender setting its own margin on top. The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. Those are benchmarks, not offers, and no lender is obliged to lend at them. The Financial Consumer Agency of Canada explains how mortgage rates, terms and costs are disclosed, which is a useful reference before you compare anything.
There is no single rate that applies to every borrower for either product. Pricing depends on your credit history, income, equity position, property type and the lender's own appetite for that business. The lowest rates are only available to the most qualified applicants.
How each option is repaid
A refinance is amortized. You make a scheduled payment that includes both principal and interest, and the balance falls over the amortization period you agreed to. Stretching the amortization lowers the payment and increases the total interest paid over the life of the mortgage.
A home equity line of credit is revolving, which is what makes it flexible and also what makes it easy to leave alone. Your credit agreement sets the minimum payment. If that minimum covers interest only, the balance stays roughly where it is until you deliberately pay down principal. If the limit is readvanceable, the room you free up by paying principal can be borrowed again — the very feature that can keep a balance in place for years.
That is the practical difference between the two. A refinance forces repayment through the payment itself, while a line of credit asks you to supply the discipline.
How each option is reported to the credit bureaus
Canada has two national credit reporting bureaus: Equifax Canada and TransUnion Canada. How a product is reported can matter as much as the balance itself.
A line of credit is generally reported as revolving credit, so the balance and how close you are to the limit can both be visible to anyone who later reviews your file. A refinance replaces the mortgage tradeline: the old mortgage appears as closed or paid, and the new mortgage appears as an installment account with a scheduled payment. If you keep both a mortgage and a line of credit, both may appear at once.
One consequence is worth flagging for anyone considering the home equity line of credit to pay off debt route. Moving balances onto a secured revolving account does not erase the history attached to the accounts you paid off, and it does not remove accurate information from your credit report.
If your situation has reached the point of insolvency, the picture changes again. Only a licensed insolvency trustee can administer a consumer proposal or bankruptcy. A consumer proposal stays on a credit report for 3 years after completion, or 6 years from filing, whichever comes first. A first bankruptcy stays on a credit report for 6 years after discharge.
The rules lenders work under
Not every lender plays by the same rulebook, because lending in Canada is licensed provincially, so the regulator and the rules differ depending on where you live and who you borrow from. OSFI Guideline B-20 sets expectations for residential mortgage underwriting at federally regulated lenders.
Under that framework, federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, and they qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%.
Complaints follow the same split. Consumer complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada, while provinces license and supervise most other lenders.
Home equity line of credit vs mortgage refinance at a glance
The table below contrasts the two on the points that usually decide the question. Exact terms, rates and limits are set by the lender and confirmed in your own documents.
| Feature | Home equity line of credit | Mortgage refinance |
|---|---|---|
| Structure | Revolving secured limit you draw, repay and redraw | New mortgage that replaces the existing one |
| How money reaches you | As you draw, over time | As a lump sum at funding, if approved |
| Pricing basis | Generally variable, tied to a lender's prime rate plus that lender's margin | Mortgage pricing, fixed or variable; fixed-rate mortgages are compounded semi-annually by law |
| Repayment | Minimum payment set in your agreement; if it is interest only, principal does not fall on its own | Amortized principal and interest payment on a set schedule |
| Effect on your existing mortgage | Usually sits alongside it, sometimes in a second position | Pays it out and replaces it |
| Typical fit | Ongoing or unpredictable costs, staged projects, consolidation you intend to pay down | One-time needs: renovation, consolidation, large purchase, or a change of term |
| Regulatory context at federally regulated lenders | Generally limited to 65% of appraised value, with total secured lending usually capped at 80% | Underwritten under B-20, including a total debt service ratio ceiling of about 44% and a qualifying rate of the greater of contract rate plus 2 percentage points and 5.25% |
| Credit reporting | Generally reported as revolving credit, where utilization can be visible | Replaces the mortgage tradeline and is reported as installment debt |
| Changing your mind later | You can repay and redraw within the limit | Changing terms generally means a new mortgage transaction |
| What is at stake | Your home secures the debt | Your home secures the debt |
Where a home equity line of credit fits best
- You expect several separate costs spread over months rather than one payment.
- You want to borrow only what you need, when you need it, instead of taking a lump sum you may not use immediately.
- You plan to repay faster than an amortization schedule would require.
- You want to keep an existing mortgage in place, including one with terms you would rather not disturb.
Home equity line of credit debt consolidation is one of the most common reasons people open these accounts: several balances, one secured facility, one payment to track. It can work well when the balance is being actively reduced. It works poorly when the limit is treated as new spending room, because the original debt is still there and the home now backs it.
Where a refinance fits best
A refinance tends to suit a defined amount needed once. Renovation budgets, a large purchase, or consolidating debt into a single payment with a fixed end date all fit the shape of a refinance better than a revolving limit, because the debt has a scheduled finish.
It is also the tool you use when you want to change the mortgage itself: a different term, a different rate type, a different amortization, or a different lender. Just weigh the cost of breaking an existing mortgage. Prepayment charges are set in your mortgage contract, and they can be significant, so they belong in the comparison before you decide.
A refinance also has a behavioural advantage. The payment is not optional in the same way a line of credit minimum can feel optional, so the balance declines whether or not you stay motivated.
Where a line of credit can go wrong
The main risk is that you convert unsecured debt into secured debt. Credit card balances and personal loans are generally unsecured, so a default does not put your home at risk. Once the same balance sits behind a secured limit, it does. The debt does not shrink; it moves.
A second risk is term. A revolving limit with an interest-only minimum can sit at the same balance for years, while the same amount placed on an amortized payment would have been repaid. A third is using secured borrowing to cover a recurring shortfall rather than a one-time cost. High-cost short-term credit is expensive for a reason: where a province operates a licensed payday lending regime, the federal Payday Lending Regulations cap the cost of borrowing at $14 per $100 advanced, and some provinces set a cap lower than $14 per $100, in which case the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there. For context, a payday loan is generally up to $1,500 for a term of 62 days or less, and the Criminal Code criminal rate of interest is 35% per year. Funding that kind of shortfall with your home is a heavy trade.
Questions to ask before you decide
- Is this need one-time or ongoing? If it is one-time, a revolving limit may leave the balance in place longer than necessary.
- Would I actually make extra payments on a line of credit, or would I pay the minimum?
- What does breaking my current mortgage cost, and does the refinance still make sense after that?
- What is the lender's margin over prime, and can it change?
- Does the lender assess the full limit or only the drawn balance when calculating my ratios?
- What happens to the limit if the property value falls, or if my income changes?
- Am I treating this as consolidation, or as new spending room?
For a significant decision like this, the right answer depends on your individual circumstances, and regulated professional advice — from a mortgage professional, an accountant or a licensed insolvency trustee where relevant — is worth the cost.
Where loanmoose.ca fits
loanmoose.ca is a Canadian loan matching and comparison service. It is not a lender, it does not make credit decisions, and it does not set rates or terms. What it does is help you see the shape of the market and connect with providers who may be able to help, so you can ask better questions when you get there. Any rate, limit or approval comes from the lender, not from this site, and no result here is an offer of credit.