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What Is The Difference Between a Home Mortgage and a HELOC?

April 1, 2019
3 mins
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Canada has one of the highest homeownership rates in the world. In some cities like Calgary, over 70 percent of residents are homeowners. According to CBC News, in 2018 about 6 million Canadians had a mortgage and 3 million Canadians had a home equity line of credit or HELOC. About 1.5 million Canadians have both a mortgage and a HELOC.

What is the difference between a mortgage and a HELOC?

Mortgages are home loans that are offered at either fixed or variable rates with terms between 5 and 25 years. Most Canadian mortgages have five-year interest rates, but some are available at ten-year rates. The loan-to-value rate (LTV) for a mortgage can't be more than 95 percent for home purchases. If you are refinancing a current mortgage, the maximum LTV rate is 80 percent. In 2018, 68% of Canadian mortgages were traditional fixed-rate, and 32% had variable or adjustable rates.

A HELOC or home equity line of credit is also based on home value and can be used for home purchase, combined with a traditional mortgage, or used as a stand-alone credit product. The maximum loan-to-value rate for a HELOC is 65 percent of a home's purchase price or market value. Unlike a mortgage, you can pay off a HELOC and re-use it for another purpose up to your maximum credit limit. A HELOC is a form of revolving credit.

Which is better: a mortgage or a HELOC?

It depends on your needs and home buying circumstances. If you're buying a home for the first time, a mortgage is probably the best option for two reasons. First, mortgage interest rates are usually lower than HELOC interest rates. Second, it's possible to finance a home purchase completely with a HELOC, but you will need to have a 35 percent down payment because a HELOC can't be more than 65 percent of the home's purchase price or value.

A HELOC may be preferable to a mortgage if you would like to use the line of credit flexibly. Although most HELOC interest rates are a bit higher than mortgage rates, you aren't required to pay off the principal and interest on a fixed schedule every month like a mortgage. You can even opt for interest-only payments to provide optimal flexibility. If you can provide a higher down payment on a home and want to have flexible payments, you could opt for a HELOC instead of a mortgage. You could also combine a traditional mortgage with a HELOC to provide additional flexible payment options.

HELOCs rarely have any penalties for paying the balance owed, but this isn't the case with mortgages. A closed mortgage may have penalties of between 10% and 20% if you pay it off early. An open mortgage does not have penalties, but it may also come with a higher interest rate.

If you're making a traditional home purchase and have the traditional amount of 20 percent to put down on a home and low-interest rates are your priority, a mortgage is likely your best choice. If you have flexible financial plans and would like a "rainy day" fund, a HELOC or a combination of a HELOC and a traditional mortgage may be a better fit.

Investigate mortgage and HELOC rates with's comparison tool to find your home financing choices today.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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