HELOC or refinance to pay off debt? The 65% rule, interest-only minimums, rate risk, and a worked Simcoe County example showing both — plus a 5-year payoff.
Quick answer: A HELOC gives flexible, interest-only access to your equity at a variable rate, and suits people who will pay it down on their own. A refinance folds the debt into an amortizing mortgage so it's paid off by a set date. With a federally regulated lender, the revolving HELOC portion is capped at 65% of your home's value.
Both a HELOC and a refinance let you use home equity to clear expensive debt at a much lower rate. The difference is structure: one is a revolving line you can draw on again, the other is a loan with a payoff schedule built in.
That difference matters more than the rate. Here's how each works, the rules that limit them, and a worked example including what a HELOC costs if you actually pay it off.
Federally regulated lenders cap the revolving HELOC portion at 65% of your home's value. Combined with an amortizing mortgage, the total can reach 80%. Many banks sell this as a readvanceable or all-in-one mortgage, where the available line grows as you pay the mortgage down.
You still have to qualify: lenders assess a HELOC as if it were fully drawn and repaid, using the stress-test rate.
An interest-only minimum is the HELOC's biggest strength and its biggest risk. If you pay it down on purpose, a HELOC is flexible and cheap. If you make the minimum, the balance never shrinks — and because the line is reusable, cards cleared with a HELOC can quietly fill back up.
Rate risk matters too. HELOC rates move with prime every time the Bank of Canada changes its rate, while a fixed-rate refinance keeps your payment steady for the term.
A Bradford homeowner with a $750,000 home owes $380,000 at 4.5% with 20 years left and is at renewal. They need $60,000 to clear cards and a car loan. Their bank offers a HELOC at an illustrative prime plus 0.5%, about 5%.
Keep the mortgage as is and pay interest only on the HELOC.
Same HELOC, but paying enough to clear it in five years.
Add the $60,000 to the mortgage and keep the 20-year amortization.
Rates in this example are illustrations, not quotes. Payments use Canadian mortgage maths (interest compounded semi-annually).
Lenders generally let your total mortgage reach 80% of your home's value when you refinance. Using the MLS® Home Price Index benchmark for a typical home from the Toronto Regional Real Estate Board's August 2026 report:
| Area | Typical home (benchmark) | 80% of value |
|---|---|---|
| Simcoe County (all areas) | $775,100 | $620,080 |
| Barrie | $624,700 | $499,760 |
| Orillia | $504,600 | $403,680 |
| Innisfil | $666,400 | $533,120 |
| New Tecumseth | $761,400 | $609,120 |
| Bradford | $958,400 | $766,720 |
| Collingwood | $625,000 | $500,000 |
| Wasaga Beach | $590,000 | $472,000 |
| Midland | $489,600 | $391,680 |
Subtract what you owe to see your approximate room. Your own appraisal decides the real number. See the full Simcoe County market report.
The minimum payment is usually lower because it's interest only, but the balance doesn't go down. Compared on the same payoff timeline, a HELOC and a refinance often cost about the same; the real differences are flexibility and rate risk.
With a federally regulated lender, the revolving HELOC portion is capped at 65% of your home's value, and your total borrowing including the mortgage at 80%.
HELOCs are mostly offered by banks and credit unions to borrowers with strong credit. With bruised credit, a refinance or second mortgage through an alternative lender is usually more realistic.
Many readvanceable mortgages let you move part of the balance into a fixed-rate term. Ask before you sign, because the options vary by lender.
It usually reports as a line of credit. Keeping a large balance close to the limit can weigh on your score, which is another reason to pay it down on purpose.
More: Mortgage refinancing, A guide to refinancing and accessing equity, Debt consolidation calculator, Refinance break-even calculator, Simcoe County market stats (updated monthly).
Written by the TMC Greater Simcoe mortgage team, Orillia, Ontario. Last updated 2026-10-20. General information, not personal financial, tax or insolvency advice. Book a free consultation: 705-238-1097.