Refinance your mortgage in Canada
Change your rate or term, take out equity, or roll expensive debt into one payment. Here is how refinancing works, what it costs and when it is worth doing.
Start your refinance application →What is a mortgage refinance, and when does it pay?
A mortgage refinance replaces your current mortgage with a new one, usually to borrow against your equity, consolidate high-interest debt, or change your rate, term or amortization. Done mid-term, it means paying a penalty to break your existing contract. Done at renewal, there is no penalty.
It pays when what you gain (lower interest on debt, a needed renovation, a better payment structure) clearly beats the penalty plus closing costs. If the numbers only work on a 25-year view, it probably doesn't pay.
- You can borrow up to 80% of your home's appraised value.
- Breaking a fixed term costs the greater of 3 months' interest or the IRD; variable is usually 3 months' interest.
- You requalify at the greater of your contract rate + 2% or 5.25%.
Break your mortgage or refinance at renewal?
There are two very different refinances. At renewal, your term is ending anyway, so you can switch lenders, change the amortization or take out equity with no prepayment penalty. You just need to start early enough, ideally four months before maturity, for the new lender to approve and fund on time. Our guide to what to do before you renew covers the timing.
Breaking your term early means paying out a live contract. That almost always triggers a penalty, and on a fixed-rate mortgage the penalty can be large. So the first question is simple: how far are you from renewal? If it is a few months, wait. If it is three years and you are carrying $40,000 on credit cards at 20%, waiting may be the expensive choice.
Prepayment penalties: 3 months' interest vs. IRD
Variable-rate mortgages usually charge three months' interest. Fixed-rate mortgages charge the greater of three months' interest or the interest rate differential (IRD): roughly, the gap between your contract rate and the lender's current rate for a term close to your remaining time, applied to your balance for the months you have left. Some lenders calculate IRD using posted rates minus your original discount, which can push it higher.
Worked example (illustrative): 3 months' interest vs. IRD
Balance $400,000. Contract rate 5.5%. Two years left on a 5-year fixed. Lender's comparable 2-year rate today: 4.5%.
Three months' interest: $400,000 × 5.5% ÷ 12 × 3 = $5,500.
IRD: 1.0% rate gap × $400,000 × 2 years = $8,000.
The IRD is higher, so the penalty is about $8,000. Every lender's formula differs, so always get the exact figure on a payout statement.
Other refinancing costs
Home appraisal: typically $300–$500
Legal fees and disbursements: typically $800–$1,500
Mortgage discharge fee: typically $75–$400
Possible title insurance or lender admin fees
Some lenders cover part of the legal or appraisal cost on a switch or refinance. Ask, but don't let a $1,000 rebate distract you from a penalty that is ten times bigger.
The 80% loan-to-value limit
Federal rules cap a refinance at 80% of your home's appraised value. On a $700,000 home the new mortgage can be up to $560,000. If you owe $450,000, you have about $110,000 of room, and the penalty and closing costs come out of that. The appraisal decides the number, not your own estimate or the assessment notice, so build in a cushion.
The stress test still applies
A refinance is a new mortgage, so you qualify at the greater of your contract rate plus 2% or 5.25%. At an illustrative 4.5% contract rate, the lender tests your payments at 6.5%. Your debt-service ratios have to work at that rate with the new, larger balance. Consolidating debt helps here, because paying out a $1,200 monthly card minimum often frees up more room than the higher mortgage payment uses.
How the process works
- Get a payout statement. Ask your current lender for the exact prepayment penalty and discharge fee as of your target date.
- Estimate your equity. Take 80% of your home's likely value and subtract what you owe to see how much room you have.
- Compare lenders. Have a broker compare refinance options across lenders, since your current lender's offer is only one data point.
- Apply and requalify. Submit income and debt documents and pass the stress test on the new mortgage amount.
- Appraisal. The new lender orders an appraisal to confirm the value and your available equity.
- Lawyer closes. A lawyer pays out your old mortgage and any debts being consolidated, registers the new mortgage and releases the funds.
Most files fund in two to four weeks once the documents are in.
Real refinance scenarios
All figures below are illustrative assumptions, not current rates or offers.
Consolidating $40,000 of credit card debt
At 20%, $40,000 on cards costs about $8,000 a year in interest. Minimum payments of roughly 3% run about $1,200 a month and barely move the balance. Rolled into a mortgage at an example 5% over 25 years, that same $40,000 adds about $233 a month.
The catch: stretched over 25 years, the $40,000 costs about $29,800 in interest. Paid off over five years instead (about $754 a month at 5%), the interest drops to about $5,200. The win comes from keeping the payment high, not just lower. Our page on rolling credit card debt into your mortgage goes deeper, and the debt consolidation calculator will run your own balances.
Funding a basement suite
Home value $800,000, mortgage balance $480,000. At 80%, the maximum new mortgage is $640,000, so there is $160,000 of room. A $90,000 legal basement suite fits with space left for costs. At an example 5% over 25 years, the extra $90,000 adds about $523 a month.
Some lenders will count part of the expected rent once the suite is legal and rented, which helps you qualify. If the work is staged over months, a HELOC or a draw-based product may suit better than one lump sum. Our renovation financing options page compares them.
Switching from variable to fixed mid-term
Many variable-rate borrowers want payment certainty partway through a term. First ask your lender if you can convert to a fixed term without a penalty; many do, though you take their fixed rate rather than shopping it. If you break and move instead, the variable penalty is usually three months' interest: on $500,000 at an example 6%, that is $500,000 × 6% ÷ 4 = $7,500. That cost only makes sense if the new lender's terms are meaningfully better or you are also taking out equity.
When not to refinance
- Your renewal is only a few months away. Wait and refinance penalty-free.
- The penalty and costs exceed what you save over the rest of the term.
- You would stretch the amortization back to 25 or 30 years just to lower the payment, and keep it there.
- The debt you are consolidating will build right back up on the cards.
- You need a small or uncertain amount over time. A line of credit may be cheaper than breaking your mortgage.
The break-even rule
Add up the penalty, legal, appraisal and discharge costs. Divide by what you save each month.
Example: $3,000 in total costs ÷ $200 saved a month = 15 months to break even. If you have more than 15 months left on your term and you'll keep the savings, it works. If not, it doesn't. Check the payment side with our mortgage payment calculator.
Refinance vs. HELOC vs. second mortgage
A refinance replaces your whole mortgage. It gives you one rate and one payment, but may trigger a penalty mid-term. It suits a lump sum you need now, like a debt payout.
A HELOC is a revolving line secured on your home, up to 65% of value on its own and 80% combined with your mortgage. You pay interest only on what you draw. It suits staged or uncertain needs. Read how a HELOC works before choosing, and compare it with a lump-sum equity takeout.
A second mortgage is a separate loan registered behind your first, usually from an alternative or private lender. Rates and fees are higher, but it leaves your first mortgage untouched. That can make sense when the penalty to break is very large or you don't qualify with a bank for now, as a short-term bridge with a clear exit.
Refinancing in Calgary and Edmonton
The rules above are national, but values, appraisal timelines and suite bylaws vary by city. If you own in Alberta, see our local pages on refinancing a Calgary home and mortgage refinance in Edmonton.
Frequently asked questions
Short answers to what homeowners ask us most before refinancing.
What does it mean to refinance a mortgage?
Refinancing means paying out your current mortgage and replacing it with a new one, with the same lender or a different one. The new mortgage can be larger (to take out equity), have a different rate type, or have a different amortization. You requalify from scratch, including the stress test and usually a new appraisal.
How much can I borrow when I refinance in Canada?
Your new mortgage can be up to 80% of your home's appraised value; that cap covers the whole mortgage, not just the new money. On a $700,000 home the new mortgage can be up to $560,000. If you owe $450,000, roughly $110,000 is available before penalties and closing costs.
How much does it cost to refinance a mortgage?
Closing costs usually run about $1,500 to $5,000: an appraisal ($300 to $500), legal fees ($800 to $1,500) and a discharge fee ($75 to $400). If you break your term early, the prepayment penalty comes on top, and it is often the biggest number in the whole calculation.
Is it better to refinance now or wait until renewal?
If your renewal is within about four months, waiting is usually cheaper because there is no penalty at maturity. If you are years from renewal, refinancing now only makes sense when the savings or the use of the money clearly outweighs the penalty and costs. Get a payout statement and run the break-even math before deciding.
Do I have to pass the stress test to refinance?
Yes. A refinance is a new mortgage, so you qualify at the greater of your contract rate plus 2% or 5.25%, even if you have never missed a payment. Someone who qualified comfortably five years ago can come up short today if their income has not kept pace with their debts.
How long does a mortgage refinance take?
Most refinances take two to four weeks from a complete application to funding. The appraisal and the lawyer's work are the usual bottlenecks, so having your income documents and current mortgage statement ready saves time.
See whether refinancing is worth it for you
Free to apply and no obligation. An agent will show you the penalty, the costs and the break-even point before you decide.
Start your refinance applicationRelated services and tools
Related services
- Rolling credit card debt into your mortgage: Pay out credit cards and loans with home equity so one payment replaces several.
- A cash-out refinance: Borrow a lump sum against your home's value for a purchase, an investment or a family need.
- How a HELOC works: A revolving credit line secured on your home that you draw on and repay as needed.
- What to do before you renew: Compare your lender's renewal offer against the market before you sign it.
- Paying for a renovation with home equity: Fund a kitchen, basement suite or addition with equity rather than a high-rate loan.