Complete Guide to Mortgage Refinancing in Canada

Your home has gained value over the years, and you're sitting on equity that could fund renovations, consolidate high-interest debt, or give you a financial cushion. Refinancing unlocks that equity—but it comes with costs and considerations that determine whether it's the right move for your situation.

What Is Mortgage Refinancing?

Refinancing means replacing your current mortgage with a new one, typically with different terms, rates, or loan amounts. Unlike a simple renewal where you continue with your existing lender, refinancing often involves:

• Accessing accumulated home equity
• Changing lenders for better rates
• Consolidating high-interest debts
• Modifying your amortization period
• Switching between fixed and variable rates

Top Reasons Canadians Refinance

Access Home Equity

As your home value increases and you pay down your mortgage, you build equity. Refinancing lets you access up to 80% of your home's value for:

• Home renovations
• Investment opportunities
• Major purchases
• Education expenses
• Emergency funds

Debt Consolidation

High-interest debts eating into your budget? Consolidating credit cards (19-29% interest), car loans, and lines of credit into your mortgage (4-6% interest) can dramatically reduce monthly payments.

Example savings:

Consolidated into mortgage at 5%: approximately $260/month (over 25 years)

Monthly savings: $1,140

Learn more about debt consolidation strategies.

Lower Your Interest Rate

If rates have dropped significantly since you signed your mortgage, or if your credit has improved, refinancing to a lower rate can save thousands over your term.

Change Your Mortgage Terms

Refinancing allows you to:

• Switch from variable to fixed (or vice versa)
• Extend amortization to lower payments
• Shorten amortization to pay off faster
• Add or remove a co-borrower

How Much Can You Refinance?

In Canada, you can refinance up to 80% of your home's current appraised value minus your existing mortgage balance.

Calculation example:

• Home value: $700,000
• Maximum financing (80%): $560,000
• Current mortgage balance: $400,000
• Available equity: $160,000

The Refinancing Process: Step by Step

Step 1: Assess Your Goals

Before contacting lenders, clarify what you want to achieve:

• How much equity do you need?
• What will you use the funds for?
• Do you want to change your rate type?
• Can you afford higher payments if applicable?

Step 2: Check Your Home's Value

You'll need a current appraisal. You can estimate using:

• Recent comparable sales in your area
• Online valuation tools (estimates only)
• Professional appraisal (required for final approval)

Step 3: Calculate Your Costs

Refinancing isn't free. Understand all costs before proceeding:

The mortgage penalty is often the largest cost. For fixed-rate mortgages, this can be substantial. Learn about mortgage penalties explained.

Step 4: Gather Documentation

Lenders will require:

• Recent pay stubs (employed) or tax returns (self-employed)
• Notice of Assessment from CRA
• Bank statements
• Current mortgage statement
• Property tax bill
• Home insurance details
• List of debts being consolidated (if applicable)

Step 5: Apply and Get Approved

Your broker or lender will:

• Pull your credit report
• Verify income and employment
• Order an appraisal
• Underwrite your application
• Provide final approval

Step 6: Close and Fund

At closing:

• Sign new mortgage documents
• Pay closing costs
• Receive funds (if accessing equity)
• Old mortgage is discharged

When Does Refinancing Make Financial Sense?

Refinancing isn't always the right choice. It makes sense when:

✅ Your interest savings exceed the costs
✅ You're consolidating high-interest debt
✅ You need significant funds for a worthwhile purpose
✅ You're at least 2+ years into your term
✅ Your credit has improved significantly

It may NOT make sense when:

❌ Closing costs exceed potential savings
❌ You're close to renewing anyway
❌ You'd use equity for non-essential purchases
❌ Your financial situation has worsened

Refinancing vs HELOC: Which Is Better?

Both access home equity, but work differently:

Many homeowners use both: refinance for a specific large expense, HELOC for flexible ongoing access.

Tax Implications of Refinancing

For your principal residence:

• Interest on your home mortgage is NOT tax-deductible
• Equity used for investments MAY be deductible (consult an accountant)
• Mortgage penalties are NOT deductible

For rental properties:

• Mortgage interest is deductible as a rental expense
• Refinancing costs may be partially deductible
• Always consult a tax professional

FAQ

Q: Can I refinance with bad credit?
A: Yes, but options are limited. You may need a private lender or B-lender, which comes with higher rates. Work on improving your credit before refinancing if possible.

Q: How long does refinancing take?
A: Typically 2-4 weeks from application to funding, though complex files may take longer.

Q: Do I need to requalify under the stress test?
A: Yes. When refinancing, you must qualify at the stress test rate (your rate plus 2% or the benchmark, whichever is higher).

Q: Can I refinance if I'm self-employed?
A: Absolutely, though income verification differs. See our self-employed mortgage guide for options.

Q: Is there a limit to how often I can refinance?
A: No legal limit, but frequent refinancing accumulates costs and resets your amortization each time.

Q: What if my home value has decreased?
A: Lower values mean less available equity. If you're underwater (owe more than it's worth), refinancing isn't possible until values recover.

What's Next

Ready to explore refinancing? Get a free consultation with our team. We'll calculate your available equity, estimate your costs, and show you exactly what refinancing could look like for your situation.