HELOC vs Refinance vs Selling: Getting Cash Out of an Ontario Home

Last updated 7 September 2026. Written by Jatin Dua, Broker of Record at RE/MAX Quantum Realty, 799 The Queensway, Etobicoke. Updated September 2026 · Ontario · 9 min read

The 80% ceiling everyone runs into first

Before you compare products, work out how much equity is actually reachable. Federally regulated lenders cannot leave you with more than 80% loan-to-value on a refinance or a HELOC. That 20% cushion is not negotiable and it is calculated on an appraised value, not on what you think the place is worth.

The arithmetic is simple and it surprises people:

	Example A	Example B
Appraised value	$1,200,000	$900,000
80% of value	$960,000	$720,000
Existing mortgage balance	$540,000	$620,000
Maximum you can access	$420,000	$100,000

HELOC: flexible, but the rate moves

A home equity line of credit sits behind or alongside your mortgage as a revolving facility. You are approved for a limit, you draw what you need, and you pay interest only on what is outstanding. Pay it back, and the room is available again.

• Rate: variable, typically prime plus a spread. It moves the day the Bank of Canada moves.
• Minimum payment: interest only on the drawn balance. Nothing forces you to repay principal, which is both the appeal and the danger.
• Standalone HELOC limit: generally 65% of value, though a combined mortgage-plus-HELOC product can reach the full 80%.
• Set-up cost: appraisal and legal, often $1,000 to $2,000, and some lenders cover it.
• Best for: a renovation paid in stages, a bridge between two closings, a business float, or a rainy-day facility you set up and never draw.

Refinance: cheaper money, one-time cost

Refinancing means breaking your existing mortgage and writing a new, larger one. The new balance pays out the old mortgage and hands you the difference in cash. Because it is a first-position mortgage, the rate is materially lower than a HELOC’s.

• Rate: ordinary fixed or variable mortgage rates — usually one to two percentage points below a HELOC.
• Payment: blended principal and interest, amortised. You are forced to pay it down, which for most people is a feature.
• Qualifying: you must pass the stress test at the greater of your contract rate plus 2% or 5.25%, on the whole new balance.
• Costs: appraisal, legal and discharge fees, typically $1,500 to $2,500 — plus the penalty, which is the real variable.

The prepayment penalty that decides it

Breaking a fixed mortgage mid-term triggers a penalty, and on a fixed rate that penalty is the greater of three months’ interest or the interest rate differential (IRD). IRD calculations differ wildly between lenders, and on a large balance with time remaining they can run into five figures.

Variable-rate mortgages are far kinder: the penalty is almost always just three months’ interest.

Mortgage type	Typical penalty	On a $600,000 balance
Variable rate	3 months’ interest	Roughly $6,000 – $8,000
Fixed, near end of term	3 months’ interest	Roughly $6,000 – $8,000
Fixed, mid-term, rates fallen	Interest rate differential	$15,000 – $40,000+

Selling: the option people dismiss too early

If the reason you need money is that the house no longer fits — too big, too expensive to carry, in the wrong place — borrowing against it just adds a payment to a problem. Selling releases 100% of the equity, ends the carrying cost, and in Ontario your principal residence gain is not taxed.

The costs are real but finite: commission, legal, and the move. On a $1.1M sale, expect roughly 4 to 6% all-in. Set that against years of HELOC interest and the comparison often looks different than owners expect.

• Land transfer tax matters on the way back in. In Toronto you pay both the provincial and the municipal charge, so buying again is expensive. Selling to release equity works best if you are downsizing, moving out of the city, or renting for a while.
• Timing is a market call, not a math one. Selling into a slow spring and buying into a hot fall is a real risk. So is the reverse.
• You can do both. Sell, buy smaller, and keep the difference — the classic downsize — is still the cleanest way to convert a house into money.

Side by side

Same $200,000, three different structures.

	HELOC	Refinance	Sell
Cost to set up	$0 – $2,000	$1,500 – $2,500 plus penalty	4 – 6% of sale price
Rate on the money	Prime + spread, variable	Mortgage rates, fixed or variable	None
Forced repayment	No	Yes, amortised	N/A
Can it be reduced or frozen?	Yes	No	N/A
Re-qualifying required	Yes	Yes, full stress test	No
Best when	Access you may not use	A lump sum you will carry	The house no longer fits

The interest deduction question

Interest on money borrowed against your home is not deductible in Canada simply because it is secured by the house. Deductibility follows the use of the money. Borrow to renovate your own kitchen and the interest is a personal expense. Borrow to buy a rental property or invest in income-producing assets and the interest is generally deductible against that income.

This is precisely where people get themselves into trouble by mixing funds in one account. If deductibility matters to your plan, structure it with an accountant before the first draw, not at tax time.

Common questions

How much equity can I actually take out of my Ontario home?

Up to 80% of the appraised value, less whatever you still owe. A standalone HELOC is usually capped lower, at 65% of value, though a combined mortgage-and-HELOC product can reach the full 80%.

Is a HELOC or a refinance cheaper?

A refinance almost always carries a lower interest rate, because it is first-position mortgage money. A HELOC is usually cheaper to set up and costs nothing while undrawn. Which one wins depends on how much you will actually borrow and for how long.

Do I have to pass the stress test again to refinance?

Yes. A refinance at a federally regulated lender is fully re-underwritten and stress-tested on the new, larger balance at the greater of your contract rate plus two percentage points or 5.25%.

Can my lender cancel my HELOC?

A HELOC is a demand facility. Lenders can reduce or freeze the available limit, and they have done so in past downturns. Treat it as access, not as a guaranteed reserve.

Is the interest on a HELOC tax-deductible?

Only if the borrowed money is used to earn income — a rental purchase or an investment portfolio, for example. Borrowing against your home to renovate it or consolidate personal debt does not create a deduction. Confirm with an accountant before you draw.

Should I just sell instead?

Worth costing out honestly. If the house is bigger or more expensive than you need, selling releases everything, ends the carrying cost, and the gain on a principal residence is not taxed. If you love the house and just need money for a project, borrowing is usually cheaper than a sale plus a repurchase in Toronto.

Related reading

• Selling with little or no equity in Ontario
• Free AI home value estimator
• More Ontario real estate guides

General information about how Canadian home equity products work, not mortgage, tax, investment or financial advice, and not a recommendation for your circumstances. Rates, penalties and lender policies change. Confirm your prepayment penalty with your lender and the tax treatment with a licensed accountant before you act.