How to Refinance Your Mortgage in Canada – What You Need to Know

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 Refinancing your mortgage in Canada can be a powerful financial tool — whether you’re looking to lower your monthly payments, pay off debt, access home equity, or secure a better interest rate. But before jumping in, it's important to understand the process, costs, and potential benefits to ensure refinancing truly works in your favor.

In this guide, we’ll walk you through everything you need to know about mortgage refinancing in Canada in 2025.

What Is Mortgage Refinancing?

Mortgage refinancing involves replacing your current mortgage with a new one, typically with new terms. This may include a different interest rate, loan amount, or amortization period.

When you refinance, you’re essentially paying off your old mortgage with a new one — ideally structured in a way that benefits your financial goals.

Why Do Canadians Refinance Their Mortgage?

There are several common reasons to refinance a mortgage in Canada:

1. To Get a Lower Interest Rate

This is the most popular reason to refinance. If interest rates have dropped since you first got your mortgage, you could save thousands in interest over the life of your loan.

2. To Access Home Equity (Cash-Out Refinance)

Homeowners often refinance to borrow against their home's equity. You can use this cash for:

  • Home renovations

  • Education expenses

  • Investing in a business

  • Debt consolidation

3. To Consolidate Debt

By refinancing at a lower mortgage rate, you can pay off high-interest debts (like credit cards or personal loans) and roll them into your mortgage.

4. To Change the Mortgage Term

Want to pay off your mortgage faster? Or lower your monthly payments? Refinancing lets you adjust the amortization period to fit your new financial plan.

5. To Switch Mortgage Types or Lenders

You might want to switch from a variable to a fixed rate (or vice versa), or simply change lenders for better terms, more flexibility, or customer service.

How Does Mortgage Refinancing Work in Canada?

There are three main ways to refinance your mortgage:

1. Breaking Your Current Mortgage Early

You can refinance by breaking your existing mortgage and replacing it with a new one. However, this often comes with a prepayment penalty:

  • Fixed-rate mortgages: Penalty is usually the greater of 3 months’ interest or the Interest Rate Differential (IRD).

  • Variable-rate mortgages: Penalty is typically just 3 months’ interest.

Despite the penalty, it may still make financial sense if the savings from a lower interest rate outweigh the cost.

2. Home Equity Line of Credit (HELOC)

A HELOC is a revolving credit line secured against your home. You only pay interest on the amount you use, and rates are usually variable.

Great for:

  • Flexible borrowing

  • Ongoing renovations or expenses

  • Emergencies

3. Blending and Extending

Some lenders offer a “blend and extend” option, where you combine your current mortgage rate with a new lower rate. This lets you avoid prepayment penalties but may not give you the best possible rate.

Is Now a Good Time to Refinance? (2025 Update)

In 2025, interest rates are still a major factor. With inflation stabilizing and the Bank of Canada gradually adjusting rates, many lenders are offering competitive refinancing options.

If you locked in a mortgage at higher rates in previous years, now could be an excellent time to refinance and save.

How Much Does Refinancing Cost in Canada?

Here’s what you might pay when refinancing:

  • Prepayment penalties (if breaking your current mortgage)

  • Legal fees: $700–$1,500

  • Appraisal fees: $300–$500

  • Mortgage discharge fees: $200–$400

  • Title insurance (optional but recommended)

Some lenders may cover some of these costs to attract new customers, especially if you have good credit and solid equity.

How Much Can You Borrow When Refinancing?

In Canada, you can refinance up to 80% of your home’s appraised value. This is called the Loan-to-Value (LTV) ratio.

Example:
If your home is worth $600,000, 80% of that is $480,000. If you owe $350,000 on your current mortgage, you can borrow an additional $130,000.

You’ll need at least 20% equity in your home to qualify for refinancing without mortgage default insurance.

Refinancing vs. Second Mortgage vs. HELOC

OptionDescriptionBest For
RefinancingReplaces your current mortgage with a new oneLower interest rate, cash out, debt consolidation
Second MortgageA separate loan on top of your existing mortgageLarge one-time expenses, short-term borrowing
HELOCFlexible credit line using home equityOngoing or future expenses

Each option has pros and cons, so compare carefully based on your financial needs.

What Do You Need to Qualify for Refinancing?

Lenders will review several factors:

  • Credit score (ideally 650+)

  • Stable income and employment

  • Debt-to-income ratio

  • Home equity (at least 20%)

  • Appraisal of your property

The stronger your financial profile, the better rate and terms you’ll qualify for.

Steps to Refinance Your Mortgage in Canada

1. Review Your Current Mortgage Terms

Check for penalties, remaining amortization, and renewal date. Some people time refinancing with their mortgage renewal to avoid fees.

2. Check Your Credit Score

A good credit score improves your chances of getting a better rate.

3. Determine Your Goals

Are you looking to lower payments, access equity, or pay off debt? Knowing your objective will help you choose the right refinancing option.

4. Compare Lenders and Rates

Use online rate comparison tools or speak to a mortgage broker. Don’t just look at the rate — check fees, flexibility, and prepayment options too.

5. Get a Property Appraisal

Most lenders will require a recent appraisal to determine your home’s value.

6. Submit Your Application

Be prepared to provide documents like:

  • Proof of income

  • Notice of Assessment (NOA)

  • Mortgage statement

  • Property tax bill

7. Close the New Mortgage

Work with a lawyer or notary to finalize the refinance, sign the documents, and register the new mortgage.

Pros and Cons of Mortgage Refinancing

✅ Pros:

  • Lower interest rate = long-term savings

  • Access to cash for important needs

  • Simplified finances via debt consolidation

  • Potential to pay off your home faster

❌ Cons:

  • Prepayment penalties can be expensive

  • Legal and appraisal fees

  • Risk of increasing total debt

  • Longer amortization could cost more in interest over time

Conclusion: Is Refinancing Right for You?

Refinancing your mortgage in Canada can be a smart financial move — if done for the right reasons and at the right time. Whether you're looking to save money, access equity, or restructure your debt, refinancing offers flexibility and control over your financial future.

Before making any decisions, be sure to:

  • Review your current mortgage

  • Compare offers from multiple lenders

  • Speak to a qualified mortgage broker or financial advisor

In 2025, with interest rates stabilizing and home equity on the rise for many Canadians, now might be the perfect time to refinance and secure your financial stability.

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