UNDERSTANDING HOME EQUITY: LINE OF CREDIT VS. LOAN

Home equity gives homeowners powerful borrowing options, but choosing between a HELOC and a home equity loan can be confusing. They may sound similar, but they work very differently and are approved based on different lender guidelines.

Here’s what you need to know before tapping into your equity in Ontario.

1️⃣ How unsecured lines of credit work

Unsecured lines of credit are based entirely on your risk profile.

✔️ lenders assess income vs debt

✔️ higher interest rates (6%–7.5%)

✔️ limited borrowing power

These products don’t use your home as security, which makes them costlier.

2️⃣ Why secured mortgage lending offers more

Mortgages allow higher borrowing because the lender has collateral.

✔️ loan secured against your home

✔️ lower rates than unsecured credit

✔️ more flexibility for large borrowing

If you default, lenders can recover funds through the property, not just your credit score.

3️⃣ What a HELOC actually is

A HELOC uses your home’s equity as a revolving credit line.

✔️ interest-only or flexible repayment

✔️ lower rates than unsecured credit

✔️ borrow and repay as needed

It acts like a credit card secured against your home, but at a far lower rate.

4️⃣ Smart uses for a HELOC

A HELOC should be used for strategic financial goals.

✔️ home renovations

✔️ education costs

✔️ down payment for investment property

Use it wisely — not for everyday spending — to avoid long-term debt accumulation.

5️⃣ How much you can borrow with a HELOC

Lenders allow borrowing up to 80% of your home’s value.

✔️ based on appraised value

✔️ minus your current mortgage

✔️ flexible access to funds

You can borrow, repay, and reuse funds without reapplying.

6️⃣ What happens when you sell your home

A HELOC is tied directly to the property.

✔️ balance must be paid off upon sale

✔️ repayment comes from sale proceeds

✔️ HELOC closes automatically

You cannot carry a HELOC from one property to another.

7️⃣ HELOC vs. Home Equity Loan

A HELOC is flexible — a home equity loan is fixed.

✔️ HELOC: revolving, variable, flexible

✔️ Loan: fixed amount, fixed term, fixed payment

Home equity loans generally have higher rates than HELOCs.

8️⃣ Costs involved in setting up a HELOC

A HELOC requires setup costs similar to a refinance.

✔️ appraisal ($250–$300)

✔️ legal fees ($500–$750)

✔️ no chequing or monthly banking fees

Once set up, it functions like a revolving credit account at a low rate.

💬 Final Thought

A HELOC can be a powerful financial tool when used carefully and strategically. Understanding the difference between unsecured credit, HELOCs, and home equity loans ensures you borrow wisely and avoid unnecessary interest.

If you want to explore your borrowing options or review your home equity potential, message The Frontline Mortgage Group. We’ll help you choose the right strategy safely and effectively.