Mortgage Refinancing Guide: When and How to Refinance in Canada

Mortgage refinancing can be a smart financial move. Homeowners refinance for better rates, to access home equity, or to change loan terms. If you're paying too much interest, refinancing could save you tens of thousands of dollars.

What is Mortgage Refinancing?

Refinancing means replacing your existing mortgage with a new one, typically with different terms or a better rate. You pay off your old mortgage with the new loan.

Current Mortgage Rates in Canada (2026)

• 5-Year Fixed: 4.99% - 5.49%
• 7-Year Fixed: 5.19% - 5.69%
• 10-Year Fixed: 5.39% - 5.89%
• Variable Rate: 4.45% - 4.95%

Rates vary by lender and your credit profile. Excellent credit (760+) qualifies for best rates; fair credit (620-679) may pay 0.5-1% more.

When to Refinance Your Mortgage

1. Interest Rates Drop Significantly

If rates have fallen 0.5% or more since you got your mortgage, refinancing could save you money.

Example:

• Current mortgage: $300,000 at 5.99%, 25 years remaining
• New rate available: 4.99%
• Monthly savings: ~$100
• 5-year savings: ~$6,000 (accounting for refinancing costs)

2. You Want to Access Home Equity

If your home has increased in value, you can refinance for more than you owe and use the cash for renovations, debt consolidation, or investments.

3. You Want to Change Your Loan Term

Refinance to shorten your term and pay off your home faster, or extend your term to lower monthly payments.

4. Your Credit Has Improved

If your credit score has risen since you got your mortgage, you may now qualify for better rates.

5. You Want to Switch from Variable to Fixed (or Vice Versa)

When variable rates become unstable, many homeowners switch to fixed rates for predictability.

Costs of Refinancing

Typical Refinancing Costs

• Appraisal: $300-$600
• Inspection: $300-$500
• Title Search: $200-$400
• Credit Report: $50-$100
• Lawyer/Legal Fees: $500-$1,500
• Lender Fees: 0-1% of loan amount
• Prepayment Penalty (if applicable): Varies

Total typical cost: $1,500-$3,500+

Some lenders roll closing costs into your new loan, so you don't pay upfront.

Break-Even Analysis

Determine if refinancing makes financial sense.

Formula: Costs ÷ Monthly Savings = Months to Break Even

Example:

• Refinancing costs: $2,000
• Monthly savings: $150
• Break-even: 2,000 ÷ 150 = 13.3 months

If you plan to stay in your home for 2+ years, refinancing makes sense. If you might move within a year, it may not.

How to Refinance Your Mortgage in Canada

Step 1: Check Your Current Mortgage Terms

Review your mortgage document for:

• Current interest rate
• Remaining balance
• Remaining term
• Prepayment penalties
• Renewal date

Step 2: Check Your Credit Score

Know your score and get copies of your credit reports from Equifax and TransUnion. Correct any errors.

Step 3: Calculate Your Home Equity

Home Value - Mortgage Balance = Equity

Lenders typically allow you to borrow up to 80% of your home's value.

Step 4: Determine Your Financial Goal

Are you refinancing to:

• Lower your rate?
• Access equity?
• Shorten your term?
• Change from variable to fixed?

Step 5: Compare Lenders

Get quotes from:

• Your current lender (often offers discounts for renewals)
• Other banks
• Mortgage brokers
• Credit unions

Compare:

• Interest rate
• Closing costs
• Prepayment options
• Terms and conditions

Step 6: Apply and Provide Documentation

Required documents typically include:

• Pay stubs (last 2-3)
• T4s or tax returns (last 2 years)
• Property tax assessment
• Recent mortgage statement
• Proof of address
• Government ID

Step 7: Get a Property Appraisal

The lender orders an appraisal to confirm your home's value.

Step 8: Lock Your Rate

Once approved, lock your rate. Most lenders hold rates for 120 days.

Step 9: Final Review

Review the Closing Disclosure with your lawyer. Ensure all terms match what you agreed to.

Step 10: Close and Fund

Sign documents, pay closing costs, and the new lender pays off your old mortgage. You're done!

Refinancing Options

Rate and Term Refinance

What it is: Change your interest rate and/or loan term without borrowing additional money.

Best for: Homeowners wanting a better rate or different term.

Cash-Out Refinance

What it is: Refinance for more than you owe and take the difference in cash.

Example: You owe $200,000 and refinance for $250,000. You get $50,000 in cash.

Best for: Funding home renovations, consolidating debt, or making investments.

Bridge Financing

What it is: Short-term loan to bridge the gap between buying a new home and selling your current one.

Best for: Homeowners buying before selling, needing quick access to equity.

Refinancing Red Flags

• Pressure to make quick decisions
• Vague terms or hidden fees
• No prepayment privileges
• "Too good to be true" rates
• High-pressure sales tactics
• Unwillingness to explain terms

Mortgage Refinancing FAQ

Q: Can I refinance if I have bad credit? A: Yes, but you may pay higher rates. Consider improving your [credit score](/ResourceCategory?category=Credit Score) first.

Q: Can I refinance if I'm underwater (owe more than home is worth)? A: It's difficult but possible with a co-signer or FHA programs (in USA; Canada has alternatives).

Q: How often can I refinance? A: Technically anytime, but refinancing costs make frequent refinancing impractical. Most refinance every 3-5 years.

Q: Can I refinance during my mortgage term? A: Yes, but you may face prepayment penalties. It's often easier to refinance at renewal.

Q: How long does refinancing take? A: Typically 30-45 days from application to closing.

Conclusion

Mortgage refinancing can save you significant money if rates have dropped, your credit has improved, or you need to access home equity. Always compare lenders, calculate your break-even point, and ensure the costs justify the benefits.