Should You Break Your Low-Interest Rate Mortgage or Add a HELOC?

If you locked in a low mortgage rate back in 2020 or 2021, you're not alone — and you're probably hesitant to give it up. But what if you need access to your home equity today?

Let’s walk through a real scenario that shows why refinancing your mortgage isn’t always the best move, and how a second position HELOC instead could save you thousands.

The Situation

A homeowner reached out needing to borrow $90,000 to fund renovations. Their current mortgage rate was just 2%, with one year left in the term. They had two options:

1. Break their mortgage now and refinance everything

2. Leave their current mortgage alone and borrow the $90,000 through a HELOC (a second-position mortgage)

Option 1: Refinance Now

Refinancing the full amount ($600K + $90K) at today’s rate of around 4.5% would trigger:

• A $2,500 prepayment penalty

• Loss of a portion of their original cashback

• Roughly $10,000 in extra interest over the final year of their current mortgage

• $3,500 in interest on the new $90K borrowed

Total estimated cost? About $16,000 over the next 12 months.

Option 2: Use a Second Mortgage (HELOC)

Instead of refinancing, a HELOC made more sense in this situation, where the costs were:

• 3% lender fee on $90,000 = $2,700

• Interest-only payments at 8.2% = about $7,400 if the full amount is used for a year

Total cost? Around $10,100

The Result: A Savings of Nearly $6,000

By keeping their 2% mortgage and using the HELOC for the extra funds, this homeowner could save almost $6,000 in the first year alone. Plus, they kept things flexible — when their mortgage renews next year, they’ll have the option to consolidate everything or move to a better lender.

When This Strategy Makes Sense

A second-position mortgage (like this HELOC) is worth considering if:

• You have a low fixed mortgage rate with 6–12 months left

• You only need to borrow a modest amount of equity

• You want to avoid large penalties or blended rates

• You’re looking for short-term flexibility until renewal

Want to explore if this makes sense for you? Give us a call today to run the numbers and help you save money!