Refinancing means replacing your current mortgage with a new one, usually to borrow more, change your rate or term, or switch lenders. It can be a smart move, but it isn’t free, and it doesn’t always beat the alternatives. Here’s how it works, what it costs and how to decide.
Why people refinance
- Access home equity for renovations, education, a down payment on another property or other goals
- Consolidate higher-interest debt, like credit cards or car loans, into one lower-rate payment
- Lower your monthly payment by extending your amortization
- Change your rate or lender to get better terms or features
How much can you borrow?
You can refinance up to 80% of your home’s current appraised value, minus what you still owe.
| Amount | |
|---|---|
| Home value (appraised) | $600,000 |
| Maximum refinance (80%) | $480,000 |
| Current mortgage balance | $350,000 |
| Equity you could access | $130,000 |
If you’re adding a legal secondary suite, a special CMHC-insured refinance allows up to 90% of the home’s value after the suite is built. I cover it in my guide to using rental income.
You’ll still need to qualify for the new mortgage, including the federal stress test, so your income and debts matter as much as your equity.
What refinancing costs
| Cost | Typical range | Notes |
|---|---|---|
| Prepayment penalty | Varies widely | Usually the biggest cost if you break mid-term |
| Legal fees | $800 to $1,200 | Sometimes covered by the new lender |
| Appraisal | $300 to $500 | Some lenders waive it |
| Discharge fee | $200 to $500 | Charged by your current lender if you switch |
| Registration fee | Small | Varies by province |
The penalty to break a fixed-rate mortgage can run into the thousands, or tens of thousands. I explain how penalties work in my fixed vs. variable guide.
Two things many people don’t realize
You may lose your insured rate. If your current mortgage is insured (you put less than 20% down), refinancing turns it into an uninsured mortgage. Uninsured rates are usually a bit higher.
A longer amortization costs more overall. Stretching your mortgage to 30 years lowers your payment, but you’ll pay more interest over time. Most major lenders cap refinances at 30 years.
Alternatives to a full refinance
| Option | How it works | Best for |
|---|---|---|
| Blend and extend | Your lender blends your current rate with today’s rate, often while adding funds, and resets your term. No penalty. | Accessing equity mid-term without a big penalty |
| HELOC | A revolving line of credit secured by your home, up to 65% of its value, or 80% combined with your mortgage | Ongoing or staged expenses, like a renovation |
| Wait until renewal | Refinance when your term ends, with no penalty | When renewal is less than a year away |
| Switch at renewal | Move to a new lender at renewal without borrowing more | Getting a better rate without requalifying under the stress test |
Is debt consolidation worth it?
Rolling credit card debt at around 20% into a mortgage at around 4% to 5% can dramatically lower your monthly payments. But you’re turning short-term debt into debt you’ll pay for 25 years or more. It works best when you have a plan to avoid building the balances back up, and ideally put some of the monthly savings toward the mortgage.
A quick checklist
- Ask your current lender for your exact penalty, in writing.
- Ask about blend and extend before you break anything.
- Compare the total cost, including penalty and fees, not just the rate.
- Check how long until renewal. Waiting a few months can save thousands.
- Know what you’ll use the money for, and whether a HELOC might fit better.
Related reading: mortgage renewal tips.
Frequently asked questions
How much equity can I take out when I refinance?
You can refinance up to 80% of your home’s appraised value, minus your current mortgage balance. For example, on a $600,000 home with $350,000 owing, you could access up to $130,000.
How much does it cost to refinance a mortgage?
Refinancing typically costs $1,300 to $2,200 in legal, appraisal and discharge fees, plus any prepayment penalty if you break your mortgage before renewal. The penalty is often the largest cost.
Can I refinance without paying a penalty?
Yes. You can refinance penalty-free at renewal, or ask your lender about a blend and extend, which lets you access equity mid-term without breaking your mortgage.
Do I have to pass the stress test to refinance?
Yes. Refinancing with a federally regulated lender requires you to qualify under the stress test. A straight switch to a new lender at renewal, without borrowing more, generally does not.
What is the difference between refinancing and a HELOC?
A refinance replaces your mortgage with a larger one at a set rate and payment. A HELOC is a separate line of credit you draw on as needed, usually at a variable rate, up to 65% of your home’s value.
Next step
Every situation is a little different. If you’d like to talk through yours, book a consultation or read more about my refinance service.
This guide is general information, not financial or legal advice. Rules, programs and rates change, so please confirm current details with me or the official sources linked above.