Mortgage Refinancing in Canada

What refinancing actually is

When you refinance, your existing mortgage is paid out and a new mortgage is registered in its place. The new mortgage can be larger than the old one, which is how you access equity. It can also have a different rate, a different amortization, a different lender and a different payment schedule.

This is different from a renewal, where you simply sign a new term with your existing lender for the same balance, and different from a switch, where you move the same balance to a new lender at renewal time.

How equity works in a Canadian refinance

Equity is your home's value minus what you owe. Lenders will generally refinance to a maximum of 80% of the appraised value. That 80% ceiling is what determines how much you can actually access — not the full equity number.

The appraisal matters. Lenders use the appraised value, not the price you think you could get, and the appraisal is ordered as part of the file.

When refinancing tends to make sense

• You're carrying credit card or line of credit balances at rates far above mortgage rates, and the monthly payments are squeezing you.
• Your monthly cash flow has become tight and you need breathing room while you reset.
• You need funds for a renovation, tuition, a business need, a separation or a family situation.
• Your current rate is materially higher than what's available and your penalty is modest.
• You want to restructure — change amortization, split the mortgage, or add a HELOC component for flexibility.

When refinancing may NOT make sense

• Your prepayment penalty is large relative to what you'd save — common when breaking a fixed term early.
• You have limited equity, so the 80% ceiling doesn't leave enough room to solve the problem.
• The underlying issue is spending rather than structure, and the consolidated debt would rebuild within a year.
• You're close to the end of your term — waiting a few months to refinance at renewal can avoid the penalty entirely.
• You'd be moving a small, nearly-paid-off debt onto a 25-year amortization for a small monthly gain.

How lenders evaluate a refinance

• Income and how it's documented — salaried, self-employed, commission, contract or rental.
• Credit profile and payment history, including how the debt being consolidated has been handled.
• Debt service ratios (GDS and TDS), calculated at the qualifying rate, not the contract rate.
• The property itself — type, condition, location and the appraised value.
• Loan-to-value: refinances are uninsured, so they max out at 80% and price differently than insured mortgages.

Costs and penalties to expect

• Prepayment penalty if you break a term early. On a variable this is usually three months' interest. On a fixed it is the greater of three months' interest or the interest rate differential (IRD), which can be substantial.
• Legal fees and title costs to register the new mortgage, often $900–$1,500.
• Appraisal, typically $300–$500.
• Discharge fee from your existing lender.
• Some lenders offer to cover some of these costs in exchange for a slightly higher rate — worth modelling both ways.

A real-world example

Someone with a $400,000 mortgage and $40,000 in high-interest debt may explore whether refinancing could replace multiple high-interest payments with one mortgage payment. If those debts cost $1,100 per month in minimum payments, folding them into the mortgage could reduce total monthly outflow noticeably.

The trade-off: that $40,000 now amortizes over the mortgage term. Paid over 25 years instead of five, the total interest on that portion can be higher even at a lower rate — unless you use the freed-up cash flow to make prepayments, which is exactly the plan we'd build together.

Actual savings depend on rates, penalties, qualification and your specific situation. Run your own numbers in the calculator below, then let's look at them together.