The Complete Guide to Refinancing Your Mortgage in Canada

Refinancing your mortgage means replacing your current mortgage with a new one — typically to take advantage of a lower interest rate, access your home equity, or change your mortgage terms. It's one of the most powerful financial tools available to Canadian homeowners, but it's not always the right move. This guide breaks down when refinancing makes sense, what it costs, and how to do it.

Why Do Homeowners Refinance?

There are several common reasons Canadians choose to refinance:

• Lower your interest rate. If rates have dropped since you signed your mortgage, refinancing could reduce your monthly payment and save you thousands in interest over the life of the loan.
• Consolidate high-interest debt. Rolling credit card balances, car loans, or lines of credit into your mortgage can dramatically reduce your overall interest costs. Mortgage rates are typically much lower than credit card rates (4-5% vs. 20%+).
• Access your home equity. If your home has increased in value, you can borrow up to 80% of its current appraised value (minus your existing mortgage balance). This is common for home renovations, investments, or major expenses.
• Change your mortgage term or type. Switch from variable to fixed (or vice versa), shorten your amortization, or adjust your payment schedule.

How Much Can You Borrow?

When refinancing, you can borrow up to 80% of your home's current appraised value, minus what you still owe. This is known as your loan-to-value (LTV) ratio.

For example, if your home is worth $800,000 and you owe $400,000:

• Maximum mortgage: $800,000 × 80% = $640,000
• Available equity: $640,000 − $400,000 = $240,000

You could refinance up to $640,000 and receive up to $240,000 in cash (minus any fees). Use our Refinance Calculator to estimate your numbers.

What Does Refinancing Cost?

Refinancing isn't free. You'll want to factor in these costs to make sure the savings outweigh the expenses:

• Prepayment penalty: If you break your mortgage mid-term, your lender will charge a penalty. For variable-rate mortgages, this is typically 3 months' interest. For fixed-rate mortgages, it's the greater of 3 months' interest or the Interest Rate Differential (IRD) — which can be substantial.
• Appraisal fee: $300 to $500 for a professional property appraisal.
• Legal fees: $800 to $1,500 for a lawyer to register the new mortgage.
• Discharge fee: $200 to $350 to remove the existing mortgage from title.

As a rough guideline, total refinancing costs (excluding the penalty) typically run $1,500 to $3,000. The prepayment penalty is the big variable — ask your current lender for the exact amount before you commit.

Breaking Your Mortgage: The Prepayment Penalty

The prepayment penalty is the single biggest cost of refinancing mid-term. Here's how it works:

Variable-rate mortgages: The penalty is almost always 3 months' interest on your remaining balance. On a $400,000 balance at 5%, that's roughly $5,000.

Fixed-rate mortgages: The penalty is the greater of 3 months' interest or the IRD. The IRD compares your current rate to the lender's current rate for the remaining term. If rates have dropped significantly since you signed, the IRD can be very large — sometimes $10,000 to $30,000 or more.

The best time to refinance without a penalty is at renewal, when your term expires. If you're within 120 days of renewal, many lenders will waive the penalty entirely.

When Does Refinancing Make Sense?

Refinancing makes financial sense when the long-term savings outweigh the upfront costs. Here are some common scenarios:

• Rate savings of 0.5% or more. If you can reduce your rate by at least half a percentage point, the savings over your term will likely exceed the costs — especially on larger mortgages.
• Debt consolidation with significant high-interest debt. If you're paying 20% on $30,000 in credit card debt, rolling it into a 5% mortgage saves you roughly $4,500 per year in interest alone.
• Home renovations that increase value. Borrowing against equity at 5% for a renovation that increases your home's value by more than the cost is a smart financial move.
• Your renewal is coming up. This is the ideal time to refinance — no penalty, and you can shop the market for the best rate and terms.

The Refinancing Process: Step by Step

• Step 1: Crunch the numbers. Use our refinance calculator to estimate your new payment, savings, and break-even point.
• Step 2: Get your penalty amount. Call your current lender and ask for your exact prepayment penalty. This is the key number in your decision.
• Step 3: Get pre-approved. A mortgage broker can shop multiple lenders to find you the best rate and terms for your refinance.
• Step 4: Appraisal. Your new lender will order a property appraisal to confirm your home's current value.
• Step 5: Legal and closing. A lawyer handles the discharge of your old mortgage and registration of the new one. This typically takes 2 to 4 weeks.

Refinancing vs. HELOC: What's the Difference?

Both refinancing and a HELOC (Home Equity Line of Credit) let you access your home equity, but they work differently:

• Refinancing replaces your entire mortgage with a new one. You get a lump sum, a fixed or variable rate, and regular payments over a set amortization. Best for large, one-time needs like debt consolidation or major renovations.
• A HELOC is a revolving credit line secured against your home. You can draw and repay as needed, and you only pay interest on what you use. Best for ongoing or flexible needs. HELOC rates are typically higher than mortgage rates.

In some cases, a combination mortgage + HELOC product gives you the best of both worlds. A broker can help you evaluate which structure fits your situation.

Common Refinancing Mistakes to Avoid

• Not calculating the full cost. Factor in the penalty, legal fees, appraisal, and any other costs. If the break-even point is longer than your new term, it might not be worth it.
• Extending your amortization without a plan. Refinancing often resets your amortization to 25 or 30 years. This lowers your payment but increases total interest. If possible, keep your amortization the same or shorter.
• Only talking to your current lender. Your bank wants to keep your business, but they may not offer the best rate. A mortgage broker shops dozens of lenders on your behalf.
• Consolidating debt without changing habits. Rolling credit card debt into your mortgage only works if you don't run up the cards again. Have a plan for your spending before you refinance.