How to Choose Between a Refinance, a HELOC and a Second Mortgage

Financing Home in Toronto

For many homeowners, accessing the equity of their home offers many advantages. Generally, this is done if the homeowner is looking to make another investment, pay for a child’s tuition, home renovations, debt consolidation, and so forth. There are three ways to access the equity of a home:

  1. Refinance the mortgage
  2. Apply for a Home Equity Line of Credit (HELOC)
  3. Get a second mortgage

It is important to note that each option has its own qualifying criteria, risk and cost. Therefore, it is important to speak to a qualified mortgage specialist to weigh out each option and discern which is the best avenue for your current situation.

Accessing Equity By Refinancing The Mortgage

When it comes to refinancing your mortgage, you will need at least 20% equity already in your home, thereby allowing you to access up to 80% of the home’s value minus what you still owe on the mortgage. The equity will be received in a lump sum payment. In order to qualify, you will need a credit score of at least 600, and for many lenders, a score of at least 650.

The benefit of refinancing your mortgage is that the interest rate is generally the best fixed or variable rates (depending on the mortgage type) with the interest being collected on the full loan. Therefore, you end up paying interest and principal.

Other costs associated with refinancing include a penalty for breaking the contract. Based on whether you had a fixed or variable rate mortgage, you may need to pay an interest rate differential or 3 months’ interest penalty, respectively.

Accessing Equity With A Home Equity Line Of Credit (HELOC)

Just like refinancing a mortgage, you will need at least 20% equity in your home and a credit score of at least 650 to apply for a Home Equity Line of Credit (HELOC. Since this is a line of credit, you can just withdraw money as you need it, rather than a lump sum payment. The HELOC itself can be up to 65% of the home’s total value.

The interest rate is a variable rate plus premium with no penalty fees, so your payments are the interest on the loan along with any fees associated with the product as determined by your financial institution. To apply for a HELOC, simply speak to your existing mortgage provider to see what options they offer, or call us at and we will put one in place for you, as not all lenders offer this product.

Accessing Equity With A Second Mortgage

For many homeowners, the idea of a second mortgage can seem daunting. However, it may very well the best option at hand, if refinancing the first mortgage is simply unfeasible because the penalty to break your current mortgage is too large. There is also the option of a private 2nd mortgage, and some private lenders may be willing to go up to 90% loan to value depending on the security, allowing additional equity to be used from the home for whatever purposes required. Be aware that private funds to this loan to value will be quite expensive, typically around 13-17% interest only, with broker, lender, and legal fees adding to the costs of borrowing.

Speak to a Mortgage Specialist Today in Toronto, Ontario

Determining the best strategy can be difficult, which is why it is important to speak to a qualified mortgage broker. The team of mortgage brokers at can make this process simple. To find out which product is best for you, give us a call or fill out our contact us form to get started.

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