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Around the World => Canada Discussion => Topic started by: Olives on December 31, 2021, 03:14:44 PM

Title: Mortgage Refinance vs HELOC, which one is better
Post by: Olives on December 31, 2021, 03:14:44 PM
My understanding is that both allow us to take advantage of our house's equity, however I'm a bit confused on how they work exactly and curious which one is preferred / the safer route.

The goal is to leverage our equity for long-term investment purposes (ETFs, blue chips, etc)

House price when bought: ~510k, year 2011
Downpayment: 20%
Still owe: ~260k
Equity %: ~49%
Remaining Amortization at Maturity: ~13 years

We haven't done any reappraisals since we bought the house, but from looking at selling prices in our neighborhood, my guess is that it is valued at least $800k (being conservative).

Refinancing means when we renew our mortgage (which will be in a year or so), we would end up with a higher mortgage (instead of 260k, say we now owe 500k*) as well as a longer amortization period (instead of 13, say we now look at 20 years*), which I see as downsides, but the upside is that the interest rate is still low with a similar monthly mortgage amount as today's.
(* pulling these numbers out of my butt, not looking for accuracy here, using them just as examples)

HELOC means we get a 200k loan, with a re-advanceable mortgage, we pay a similar monthly mortgage amount as today's PLUS heloc repayment (which can be interest-only if we wish, and tax deductible), upside is the tax deductible on the interest for the HELOC, we still only owe 260k and sticking with the 13year amortization period, downside is a higher interest rate, and from what I understand, the lender can always decide that we need to pay back the entire 200k.

Would love to hear whether I understand the 2 options correctly, and hear advises from anyone whose gone through either of these options and whether they'd recommend one vs the other.