How much equity do I need to refinance my mortgage in Canada?

Most lenders let you borrow up to 80% of your home's appraised value, minus what you owe on the mortgage and any other loans secured by the home. So you need to keep at least 20% equity after the refinance. An insured refinance to build a secondary suite can go up to 90%, with conditions.

Do I need to pass the stress test to refinance?

Yes, with a federally regulated lender. You qualify at the higher of 5.25% or your contract rate plus 2%. Lenders that aren't federally regulated, such as many credit unions, may apply a similar test. The stress-test exemption for straight switches doesn't apply when you borrow more.

How much does it cost to refinance a mortgage in Canada?

Mid-term, the largest cost is usually the prepayment penalty: three months' interest or an interest rate differential, often whichever is higher. You may also pay for an appraisal, legal fees, discharge and registration fees, and title insurance. At renewal there's no prepayment penalty, so costs are usually much lower.

Can I refinance before my mortgage term ends?

Yes, but on a closed mortgage you'll usually pay a prepayment penalty. Compare the penalty and fees with what you'll save, ask about a blend-and-extend, and check whether your lender lets you renew or refinance early without a penalty in the months before maturity.

Is it better to refinance or get a HELOC?

A refinance suits a lump sum you need now, such as paying out debt. A HELOC suits ongoing or uncertain costs, because you borrow and repay as needed, up to 65% of your home's value. HELOCs usually have variable rates, so plan how you'll pay the balance down.

Can I refinance with bad credit?

Possibly. Banks have stricter credit criteria, but alternative and private lenders may put more weight on other factors such as equity. Rates and fees are higher, so it usually works best as a bridge with a plan to move back to a lower-cost lender. 8Twelve arranges these mortgages; we don't lend directly.

How long does a mortgage refinance take?

In our experience, often a few weeks from a complete application, depending on how quickly the appraisal, approval and legal work are completed. Start earlier if you're timing it with your renewal date or a payout deadline.

Mortgage Refinance in Canada: 2026 Guide

Short answer: a mortgage refinance in Canada means paying out your current mortgage and replacing it with a new one, usually to borrow against your home equity, consolidate higher-interest debt, or change your rate, term or amortization. You can generally borrow up to 80% of your home's appraised value ^[1][2], you'll need to qualify under the stress test ^[3], and if you refinance before your term ends you'll usually pay a prepayment penalty ^[4]. Done at renewal, there's no prepayment penalty.

This guide is for homeowners who want to understand their options before talking to a lender. It covers how much you can borrow, what it costs, how to tell whether it's worth it, and the alternatives. If you'd rather have someone run the numbers with you, our mortgage refinancing team compares options from 65+ lenders.

What this guide covers:

What a mortgage refinance is, and how it differs from a renewal or a switch
How much you can borrow, and the requirements to qualify
Costs, prepayment penalties and how to find your break-even point
When to refinance, and the alternatives (blend-and-extend, HELOC, second mortgage)
A step-by-step process, plus answers to common questions

What is a mortgage refinance?

A mortgage refinance is when you replace your existing mortgage with a new mortgage agreement, either with your current lender or a new one. The new mortgage pays out the old one. You can increase the amount you borrow (up to the lender's limit), change your amortization, or move to a different rate type or term. Because it's a new loan, the lender re-approves you based on your income, credit, debts and the home's current value.

People often mix up refinancing, renewing and switching. Here's how they compare:

	Refinance	Renewal	Switch (transfer)	Blend-and-extend
What changes	Loan amount, amortization, rate, term, sometimes lender	New rate and term on the same balance	Same balance moves to a new lender	Old and new rates blended into a longer term
When	Any time (penalty mid-term) or at maturity	End of term	Usually at end of term	During the term
New approval and stress test?	Yes ^[3]	Usually not with your current lender	New lender approves you; uninsured straight switches between federally regulated lenders are exempt from the stress test ^[5]	Lender's policy
Prepayment penalty?	Usually, if mid-term on a closed mortgage ^[4]	No	No, at maturity	No, but fees may apply ^[6]
Can you borrow more?	Yes, up to the limit	No	No (except up to $3,000 for costs on a straight switch) ^[5]	Lender's policy

If all you want is a better rate at the end of your term, you likely need a renewal or a switch, not a refinance. If you want to change how much you owe, or the structure of the loan, that's a refinance.

Why Canadians refinance their mortgage

FCAC lists several common reasons homeowners renegotiate a mortgage before the end of the term: rates have gone down, your financial situation has changed, your family situation has changed, or your home no longer meets your needs ^[6]. In practice, most refinances we arrange fall into one of these groups:

Accessing home equity for a big expense. Renovations, a down payment on a second property, tuition or helping family. See equity takeout for how a lump sum works.
Consolidating higher-interest debt. Rolling credit cards, a car loan or a personal loan into the mortgage can replace several payments with one at a lower rate. It can also increase the total interest you pay over the amortization if you don't pay it down faster. Our debt consolidation page explains the trade-offs.
Lowering your rate. If rates are well below your contract rate, breaking the mortgage can still make sense after the penalty. More on that in the break-even section.
Changing your amortization or payment. Extending the amortization lowers the payment but increases total interest; FCAC suggests thinking twice before doing it ^[7]. Shortening it does the opposite.
Changing ownership. After a separation, refinancing can pay out one owner's share, subject to both parties' agreement and the new lender's approval.
Adding a secondary suite. A specific insured refinance program exists for this, covered below.

How much can you borrow with a mortgage refinance?

For most homeowners, the ceiling is 80% of your home's appraised value, minus what you already owe on mortgages and other loans secured by the home. The Bank Act limits banks to 80% of a property's value on conventional residential mortgages, including refinances ^[2], and FCAC explains that you can usually borrow up to 80% of your home's value when you borrow against equity ^[1].

Illustration (not an offer):

Step	Amount
Appraised value of the home	$800,000
80% of the appraised value	$640,000
Current mortgage balance	$420,000
Maximum additional borrowing (before costs)	up to $220,000

The appraisal sets this number, not an online estimate or your property tax assessment, so build in a cushion. Any penalty or closing costs you add to the loan also come out of that room. Lenders can also set lower limits for some properties or borrowers.

The HELOC portion is capped at 65%

If part of the refinance is a home equity line of credit (HELOC), OSFI expects federally regulated lenders to limit the revolving, interest-only portion to 65% of the home's value. Borrowing between 65% and 80% has to be on an amortizing mortgage portion ^[8]. That's why many readvanceable mortgage products combine a mortgage and a line of credit.

The exception: adding a secondary suite

Since January 15, 2025, homeowners can use an insured refinance to build a self-contained secondary suite. The as-improved value of the home must be under $2 million, borrowing can go up to 90% of the value (including the value added by the suite), amortization can be up to 30 years, and the extra financing can't exceed the project costs ^[9]. The borrower or a close relative must live in the home, and the suite can't be used as a short-term rental ^[9][10]. Outside programs like this, most refinances are conventional mortgages capped at 80%.

Mortgage refinance requirements in Canada

A refinance is underwritten like a new mortgage. Expect your lender to look at:

Equity. Enough value that the new total stays within 80% (or the lender's lower limit).
The stress test. Federally regulated lenders must qualify you at the higher of 5.25% or your contract rate plus 2%, and FCAC confirms this applies when you refinance or take out a HELOC ^[3][11]. At an illustrative 4.49% contract rate, you'd qualify at 6.49%. Lenders that aren't federally regulated, such as many credit unions, may also apply a stress test ^[3].
Debt service ratios. FCAC's guidance is that housing costs shouldn't exceed about 39% of gross income (GDS) and total debt payments about 44% (TDS), though some approvals go slightly higher ^[3].
Credit. Lenders review your credit report and score ^[3]. Paying out high-interest debt can help your ratios, because the monthly minimums on cards and loans often outweigh the increase in the mortgage payment.
Income documents. Pay stubs and an employment letter, or two years of tax returns and Notices of Assessment if you're self-employed.
Property. An appraisal, recent property tax bill and, for condos, condo fee details.

If a bank can't approve the amount you need, alternative and private lenders may be an option, usually at higher rates and fees ^[1]. 8Twelve arranges these mortgages; we don't lend or fund them. Our guide to private mortgage refinance fees in Ontario explains what to expect.

See what a refinance could look like for you. Compare options across 65+ lenders, OAC, before you decide. Explore mortgage refinancing

How much does a mortgage refinance cost in Canada?

Your total cost depends mostly on timing (mid-term or at renewal), your mortgage type and your lender. FCAC lists the costs to check before breaking a mortgage ^[6] and the fees that can apply when you borrow against equity ^[1]:

Cost	When it applies	What to ask
Prepayment penalty	Breaking a closed mortgage before the end of the term ^[4]	"How is my penalty calculated, and what's the exact amount on a payout statement?"
Appraisal fee	Usually, to confirm value ^[1]	"Will the lender order and pay for it?"
Legal or notary fees	Registering the new mortgage ^[1]	"Is there a legal fee rebate?"
Discharge or registration fees	Removing the old charge and registering a new one ^[6]	"What's the discharge fee?"
Title search and title insurance	Often part of closing ^[1]	"Is it included in the legal fee?"
Cash-back repayment	If you received cash back on the current mortgage ^[6]	"Do I have to repay part of my cash back?"
Administration or reinvestment fees	Lender-specific ^[6]	"Are there any other fees?"

Lenders may be willing to pay some or all of the fees ^[6], so ask, and get every number in writing before you sign.

The prepayment penalty: three months' interest or IRD

For a closed mortgage, the penalty is usually the higher of three months' interest on what you owe or the interest rate differential (IRD). Lenders usually use the IRD when your contract rate is higher than their current rate for a similar term ^[4]. Lenders calculate the IRD differently. Some use posted rates, and some subtract the discount you were originally given, which can make the penalty larger ^[4].

FCAC's own illustration: on a $200,000 balance at 6%, with 36 months left and a current 3-year posted rate of 4%, three months' interest is about $3,000, but the IRD is about $12,000. The borrower pays the higher amount ^[4]. Variable-rate mortgages may use a different calculation, so check your contract.

Two things can reduce what you pay:

Use your prepayment privileges first. A lump-sum prepayment before you break the mortgage lowers the balance the penalty is based on, though some lenders restrict prepayments close to a payout ^[4].
Know the five-year rule. Under the Interest Act, if your mortgage term is longer than five years, after five years you can pay it off with no more than three months' interest as the penalty ^[12].

Federally regulated lenders must explain how they calculate the penalty and show prepayment terms in an information box at the start of your mortgage agreement ^[4].

Is a mortgage refinance worth it? How to find your break-even point

The simplest test: compare the total cost to refinance with the interest you'll save over the time you're sure about, usually the rest of your current term.

Illustration (not an offer; illustrative rates, not current market quotes): you owe $450,000 at 5.49% fixed with 24 years of amortization and 30 months left on your term. You could refinance the same balance at 4.49%.

	Keep current mortgage (5.49%)	Refinance (4.49%)
Monthly payment	about $2,798	about $2,545
Interest paid over the next 30 months	about $59,500	about $48,600
Interest saved over 30 months		about $10,900

Now subtract the cost of getting there:

If the penalty is three months' interest (about $6,176 on $450,000 at 5.49%), plus an assumed $2,000 for legal, appraisal and discharge, your cost is about $8,200. You'd come out roughly $2,700 ahead over the 30 months, and break even after about 22 to 23 months.
If the penalty is an IRD of, say, $14,000, plus the same $2,000, your cost is about $16,000. You wouldn't recover it within the remaining term, so refinancing for rate alone may not pay. Waiting for renewal, or a blend-and-extend, could be the better route.

The math changes when you're also paying out high-interest debt. Replacing debt that costs far more than your mortgage rate can make a refinance worthwhile even with a penalty. Our mortgage payment calculator helps you test your own numbers.

When can you refinance your mortgage?

You can ask to refinance at any time, but the cost depends on where you are in your term:

At maturity: your term has ended, so there's no prepayment penalty. You still need a new approval if you're increasing the amount. This is usually the cheapest time to refinance.
Close to maturity: many lenders let you renew early without a penalty, for example 120 days before maturity at TD ^[13] and 180 days at BMO ^[14]. Ask whether your lender will refinance within that window without a penalty.
Mid-term: a closed mortgage usually means a penalty ^[4]. An open mortgage lets you pay it off without one ^[4].
Shortly after buying: lender policies vary. The penalty tends to be larger when more of the term is left, because the months remaining are part of the calculation ^[4], and the appraised value has to support the new amount.

If you're only a few months from renewal, waiting is often the cheaper choice. If renewal is years away and high-interest debt is costing you every month, waiting can be the more expensive option.

Mortgage refinance vs blend-and-extend vs HELOC vs second mortgage

Refinancing isn't the only way to access equity or change your mortgage. Here's how the main options compare:

Option	How it works	Best for	Watch out for
Refinance	New first mortgage replaces the old one, up to 80% of value ^[1]	A lump sum now, or a full restructure	Penalty if mid-term ^[4]; stress test ^[3]
Blend-and-extend	Your lender blends your current rate with today's rate for a new, longer term ^[6]	Lowering your rate without a penalty	Fees may apply; your lender must explain how the blended rate is calculated ^[6]
HELOC	Revolving line of credit secured on your home, up to 65% of value ^[8]	Ongoing or uncertain costs, such as a staged renovation	Variable rate ^[1]; if you only pay the interest, the balance doesn't go down
Second mortgage	A separate loan registered behind your first, up to 80% of value combined ^[1], often from an alternative or private lender	Avoiding a large penalty, or a short-term bridge	Rates usually higher than a first mortgage ^[1], plus fees; needs a clear exit plan

FCAC's blend-and-extend example shows how it works: a 5.5% rate with 24 months left, blended with a 4% rate for the rest of a new 60-month term, produces a blended rate of about 4.6% ^[6]. Your lender's method may differ.

For a revolving option, see our home equity line of credit page. And if you've made prepayments during your term, FCAC notes your lender may let you re-borrow those amounts, though that adds to your balance and interest costs ^[1].

Pros and cons of a mortgage refinance

Pros

Access a lump sum at a mortgage rate, typically lower than unsecured borrowing ^[1].
Combine several debts into one payment.
Reset the structure: rate type, term, amortization, and sometimes who's on title.
At renewal, no prepayment penalty.

Cons

Mid-term penalties can cost thousands of dollars ^[4].
Closing costs (appraisal, legal, discharge) ^[1][6].
You must re-qualify, including the stress test ^[3].
A larger balance or longer amortization can increase total interest ^[7].
Your home secures the debt, so missed payments carry serious consequences ^[1].

Step by step: how to refinance your mortgage with a broker

Get your payout numbers. Ask your current lender for the penalty (or a payout statement), your balance, maturity date and remaining amortization.
Define the goal. How much do you need, what monthly payment works, and how long will you stay in the home?
Check your equity. Estimate 80% of your home's value and subtract what you owe. A broker can give you a realistic value range before the appraisal.
Compare structures and lenders. A broker can compare a full refinance, a blend-and-extend quote from your current lender, a HELOC and, where it fits, a second mortgage.
Apply and gather documents. ID, income documents, your mortgage statement, property tax bill and statements for any debts being paid out.
Review written disclosures. In Ontario, licensed mortgage brokerages must give you written disclosures, including fees, conflicts of interest and material risks, generally at least two business days before you commit ^[15]. Read them and ask questions.
Appraisal, approval and closing. The lender confirms the value and approves the file, and a lawyer or notary pays out the old mortgage and registers the new one.

When a mortgage refinance may not make sense

Your penalty is large and the rate gap is small. If the break-even point falls after your term ends, consider waiting for renewal or asking about a blend-and-extend.
You'd be refinancing to cover ongoing overspending. Consolidation helps when it comes with a plan to keep the cards paid off.
You're stretching the amortization just to lower the payment. It can be the right call for cash flow, but it costs more interest over time ^[7]. Use your prepayment privileges later to claw some of it back.
You may sell soon. Closing costs and a new penalty clock may outweigh the benefit.

From our desk: The most common refinance question we hear is "What's my penalty?" Ask your lender for the exact figure in writing before you do anything else. That one number usually decides whether it's refinance now, wait for renewal, or keep the first mortgage and look at a HELOC or second mortgage instead.

Planning a mortgage refinance with October 2026 rates in mind

The Bank of Canada's policy rate is 2.25%, where it has been at every decision in 2026, and the next announcement is October 28, 2026 ^[16]. Prime at the big banks is 4.45% ^[17]. Variable rates follow prime, while fixed rates are priced off bond yields, so they can move even when the policy rate doesn't. For a closer look, see our outlook on whether mortgage rates will go up and what a Bank of Canada rate hike in 2026 could mean. Neither should push you into a rushed decision: if a refinance only works under one rate forecast, it's worth a second look.

Check today's rates before you decide. Fixed and variable, compared across 65+ lenders. Compare today's rates

The bottom line

A mortgage refinance can lower your borrowing costs, pay out higher-interest debt or fund a major project, but it's a new loan with real costs. Know your penalty, check your equity against the 80% limit, confirm you'll qualify at the stress-test rate, and compare the alternatives before you commit. If your renewal is close, waiting a few months may save you the penalty entirely.

Run your numbers. Estimate your new payment with our mortgage payment calculator, or start with our mortgage renewal calculator if you're near the end of your term.

This article is for general information only and isn't financial, legal or tax advice. Rates, products and terms change without notice and are available on approved credit (OAC). The rate and terms you qualify for depend on your individual financial situation, including credit, income, property and loan-to-value. "Best rates" means the most suitable options available for your situation, not a guarantee of the lowest rate. Example rates and payments are for illustration only, as of October 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend directly. Licensed across Canada — see our licences.

Consolidating unsecured debt into your mortgage may lower your monthly payment but can increase the total interest paid over the amortization period. 8Twelve does not fund second or private mortgages; we arrange them with third-party lenders, and lender and brokerage fees are disclosed in writing before you commit. Rate data is from the Bank of Canada as of October 16, 2026 (policy rate) and October 14, 2026 (prime). Example payments use semi-annual compounding; rates, penalties and costs in the examples are assumptions for illustration only. Lender renewal windows (TD, BMO) are examples from those lenders' public pages as of October 20, 2026, and can change.

Mortgage Refinance in Canada: The Complete 2026 Guide

Key takeaways