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Mortgage refinancing VS home equity line of credit

By 17 November 2022September 11th, 2023No Comments
Refinancement hypothèque VS marge de crédit hypothécaire

Thinking of renovating your home? Want to send your child to a post-secondary institution? Need capital for a big project or unexpected expenses? Accessing the equity in your home is a great way to meet your capital needs and achieve your most important goals.

There are several ways to do this, including refinancing your current mortgage or getting a home equity line of credit. While both options allow you to access the equity in your home, they have different pros and cons. It’s important to understand both options and their differences to make an informed decision.

What are the differences between a mortgage refinance and a home equity line of credit?

Understanding the difference between a mortgage refinance and a home equity line of credit will help you determine which solution best suits your needs.

Mortgage refinancing

A mortgage refinance is a loan that is based entirely on the equity in your home, which is the difference between its current value and the mortgage you have left to pay. Because of the equity you have built up in your home, mortgage refinancing means that you change your mortgage payment by lowering it while giving you the opportunity to borrow more of what you owe in your current loan.

This way, you have a new source of credit to finance your projects. With a mortgage refinance, you can borrow up to 80% of the appraised value of your property. This is ideal if you want to renovate your home, buy a second home or a car, pay your children’s school fees, etc. However, it is important to keep in mind that you are not just paying off the old loan, you are starting over with a brand-new loan. This process depends largely on your financial situation.

Benefits of mortgage refinancing  Disadvantages of mortgage refinancing 
  • Access to your home equity
  • Consolidate your debts and lower your overall interest rate
  • Negotiate your interest rate and pay less for your long-term mortgage
  • Take longer to pay off your loan by increasing the amount of your loan
  • Even if the interest balance is lower, the outstanding balance on your mortgage may be high
  • Possibility of paying additional costs such as prepayment fees

Learn more about the mortgage refinancing process 


Obtaining a mortgage line of credit

A home equity line of credit is similar to a traditional personal line of credit, but it is secured by the equity in your home, meaning that the mortgage lender uses your home to guarantee that you will repay your loan. It is a revolving credit product, which means you can borrow, pay back, and borrow again up to your maximum limit.

With a home equity line of credit, you can borrow up to 65% of the current value of your property, with a very low interest rate and monthly payments on the amount borrowed only. It’s a flexible tool to invest and keep control of your finances. However, it’s important to be disciplined with the line of credit because when available credit is high, it’s easy to spend more and stay in debt for a long time. Also, your lender can take possession of your home if you default, even after you have agreed on a repayment plan.

Advantages of a home equity line of credit  Disadvantages of a home equity line of credit 
  • Easy access to available credit
  • Very low interest rates compared to other types of credit
  • Interest is paid only on the amount borrowed
  • Possibility of repaying at any time without penalty
  • Flexible, easy to adapt to your needs
  • Possibility of consolidating your debts for a lower interest rate
  • Requires discipline as interest is paid monthly
  • Easy to spend more and stay in debt longer
  • In order to transfer your mortgage elsewhere, you will have to pay off your entire mortgage line of credit
  • Your lender can take possession of your home if you default


Solution comparison table

In order to make the decision that best suits your needs, here is a comparison of the two solutions:

Mortgage refinancing  Line of credit for mortgages 
Definition  A new mortgage to pay off the existing one A line of credit secured by your property
What value can I access? Up to 80% of the appraised value of your property Up to 65% of the current value of your property
What happens to my first mortgage? It is replaced by the new mortgage It remains intact, the margin is added to your account
Fees that apply 
  • Prepayment fee if you refinance before the maturity date
  • Legal fees
  • Assessment fees
  • Assessment fees
  • Legal fees
  • Title search
  • Title insurance
Interest rate  Current interest rates for new mortgages Lower interest rate due to guarantee
Terms of repayment  Principal and interest payments according to repayment schedule Interest payments only on borrowed money


What to choose between mortgage refinancing and a home equity line of credit?

Mortgage refinancing is an ideal solution when…

There are a number of situations in which you should choose to refinance your mortgage:

  • Interest rates have dropped, especially if they are lower than your current mortgage rate
  • You are close to or have reached the maturity date of your current mortgage, which means you will not have to pay a prepayment fee
  • Your credit rating has improved, and you want to benefit from a better interest rate
  • You want a lump sum cash
  • Your financial situation has changed, and you need to shorten or extend the term of your loan
  • You want to renovate your house or do some small embellishment work, and you know exactly how much you need

It is important to do a cost-saving analysis before refinancing your mortgage. However, if you are able to take advantage of lower interest rates, the savings are usually worth it.

Re-mortgaging your property

A home equity line of credit is an ideal solution when…

The best time to use a home equity line of credit is when you’re not sure how much you need for your projects. If you have a project in the works, such as a renovation, the costs involved may be more than you anticipated. In this case, a line of credit is a great way to make sure you have enough funds without having to borrow more than you really need.

Finally, it is essential to remain vigilant and disciplined when obtaining a line of credit. It is recommended that you make a detailed plan for its use, establish a repayment schedule and budget realistically for your projects. Also, be sure to carefully review your line of credit agreement and its terms and conditions to ensure that it meets your needs.

Mortgage refinancing services

If you own real estate and have big plans for the future, mortgage refinancing is a great way to get a large sum of money and achieve your goals. Are you interested in consolidating your debts and reducing your interest rate? Our mortgage refinancing consultants have the expertise to guide you through the process.

Contact us