How refinancing a mortgage works in Canada
Refinancing replaces your mortgage with a new one, to get a lower rate, take cash out or change the amortization. In Canada you can borrow up to 80% of your home's appraised value in total without mortgage insurance, you must qualify at the higher of your new rate + 2 points or 5.25%, and breaking a closed mortgage before the term ends costs a prepayment penalty on top of legal, appraisal and discharge fees.
What counts as a refinance
Any time you replace your mortgage with a new one on different terms before or at maturity and something material changes: more money, a longer amortization, or a new lender mid-term. Renewing with the same balance and amortization is a renewal; moving that same mortgage to another lender at renewal is a switch. A refinance mid-term means breaking your current contract, which is where the prepayment penalty comes in.
How much you can borrow
| Product | Maximum, share of value | Rule |
|---|---|---|
| Refinance (all mortgages combined) | 80% | Bank Act s. 418: uninsured loans by federally regulated lenders |
| HELOC (revolving part) | 65% | OSFI Guideline B-20; any amount above it must amortize |
| Insured refinance to add units | 90% | SOR/2012-281 s. 6.1, applications from January 15, 2025 |
On an $800,000 home that's $640,000 of total borrowing. If you owe $420,000, the most cash a refinance could release is $220,000 before the penalty and fees. Your lender's appraisal sets the value; Revalued.ca explains how appraisals differ from assessments and online estimates.
You have to qualify again
A refinance is a new loan, so you go through the stress test: the payment at the higher of your new rate + 2 points or 5.25% must fit within your lender's debt-service limits (CMHC uses 39% of gross income for housing costs and 44% for all debts). At today's average new 5-year fixed rate of 4.58%, that's a qualifying rate of 6.58%. Check it on MortgageStressTestCalculator.ca.
What it costs
- Prepayment penalty if you break a closed term early: three months' interest or the interest rate differential, which FCAC says can cost thousands. Our example big-bank mortgage would pay about $9,765.
- Appraisal, legal and registration: about $1,650 in our estimate; some lenders pay part or all.
- Discharge fee if you leave your lender, and any cash-back clawback if your mortgage came with cash back (FCAC).
For the example on our home page (balance $420,000 at 5.39%, penalty $9,765), the cheapest route over five years is blend and extend. Run your own numbers.
The steps
How to refinance, step by step
- Price the penalty. Ask your lender for the prepayment penalty and payout figure in writing, or estimate it with our penalty calculator.
- Compare the routes. Run staying, breaking, blend-and-extend and a HELOC over the same time frame with the break, blend or stay calculator.
- Shop the rate. Get two or three quotes and ask who pays legal and appraisal fees.
- Qualify and appraise. The lender checks income at the qualifying rate and orders an appraisal to confirm the value.
- Sign with a lawyer or notary. They pay out the old mortgage, register the new one and send you any cash.
Frequently asked questions
How much can I refinance my house for in Canada?
Up to 80% of the appraised value, minus what you owe on all mortgages and HELOCs combined (Bank Act s. 418). A HELOC's revolving part can be at most 65% of value (OSFI B-20).
Do I have to pass the stress test to refinance?
Yes. You qualify at the higher of the new rate + 2 points or 5.25% (OSFI). Only a straight switch at renewal, with no new money and no longer amortization, is exempt.
Can I refinance an insured mortgage?
A refinance is limited to 80% of value, so it can't use high-ratio insurance. The exception since January 15, 2025 is an insured refinance to add housing units, up to 90% of the value after completion.
Primary sources
- Justice Laws — Bank Act, s. 418: 80% limit on uninsured residential loans (including refinances) (effective September 1, 2026). Checked .
- OSFI — Guideline B-20: Residential mortgage underwriting (HELOC limit 65% of value) (effective October 31, 2017). Checked .
- OSFI — Minimum qualifying rate for uninsured mortgages (contract + 2 points or 5.25%) (effective January 29, 2026). Checked .
- OSFI — Uninsured straight switches exempt from the minimum qualifying rate (effective November 21, 2024). Checked .
- Justice Laws — Eligible Mortgage Loan Regulations (SOR/2012-281), s. 6.1: insured refinance to add housing units (effective January 15, 2025). Checked .
- Financial Consumer Agency of Canada — Breaking your mortgage contract (fees, cash-back clawback, blend-and-extend) (effective October 15, 2025). Checked .
- Financial Consumer Agency of Canada — Borrowing money using home equity (80% / 65% limits, fees, risk to your home) (effective October 15, 2025). Checked .