Refinance for a renovation: refinance, HELOC or purchase-plus?

Short answer: To refinance for a renovation in Canada, you can usually take a lump-sum refinance up to 80% of your home's value, open a HELOC up to 65% of value (within an 80% combined cap), or — if you are buying a home that needs work — use an insured purchase-plus-improvement mortgage based on the as-improved value ^[1][2][3][5]. The right path depends on whether you already own the home, whether the project cost is fixed, and whether you want to draw funds as the work unfolds.

This comparison is for homeowners planning a kitchen, basement, addition or similar project, and for buyers looking at a house that needs work before they move in. It is not a generic HELOC-versus-refinance product compare; for that, see HELOC vs refinance. When you want numbers on your file, start with our renovation financing page or a refinance application.

The three ways to fund a renovation

A renovation is just a use of funds. What changes is how the loan is built:

• A refinance replaces your current mortgage with a larger one and pays you (or your contractor, through your lawyer) the difference as a lump sum. Federally discussed home-equity borrowing is usually capped at 80% of the appraised value, minus what you already owe ^[1].
• A HELOC is revolving credit secured by your home. You can borrow, repay and borrow again up to the limit. FCAC states you may borrow up to 65% of your home's value on a HELOC ^[1][2]. OSFI expects federally regulated lenders to keep the non-amortizing (revolving) HELOC portion at or below 65% loan-to-value, and to keep the combined mortgage-plus-HELOC limit at or below 80%, with anything above 65% amortizing and not readvanceable ^[3][4].
• Purchase-plus-improvement (CMHC calls its insured version CMHC Improvement) is for buying a home that needs work, or building new. The lender looks at the as-improved value — what the home should be worth after the planned work — and can insure a loan up to 95% of that value on a 1- or 2-unit owner-occupied home (up to 90% on 3- or 4-unit), if the as-improved value is under $1.5 million ^[5].

Limits and insurer rules vary by lender and change; each file is approved on its own facts, OAC.

Planning a renovation? A licensed 8Twelve agent can compare a refinance, a HELOC and — if you're buying — a purchase-plus structure across 65+ lenders, OAC. Start a refinance application

When a refinance fits

A refinance suits a renovation when the cost is reasonably fixed and you want one amortized payment. You replace the old mortgage and add the project cost (and, if the lender allows, some closing costs) to the new loan. You will usually need an appraisal, and you qualify at the stress-test rate ^[6]. See mortgage refinance requirements in Canada for documents and the 80% cap.

The trade-off is timing and cost. If your current mortgage is closed and you are mid-term, breaking it can trigger a prepayment penalty, plus legal, appraisal and discharge fees. Those costs are covered in how much it costs to refinance. If you are close to renewal, waiting so the renovation funds are added at renewal can avoid the penalty.

When a HELOC fits better

A HELOC often fits when the work will happen in stages, or when the final invoice may be lower than the quote. You pay interest only on what you draw ^[2]. On an $80,000 kitchen that takes four months, you might draw $20,000 at a time instead of paying interest on the full amount from day one.

Room is the constraint. On a $700,000 home with a $350,000 mortgage, the 65% HELOC line is $455,000, so unused room is about $105,000 — enough for an $80,000 project in this illustration. The combined 80% cap is $560,000 ^[1][4]. If your first mortgage already sits above 65% of value, a standalone HELOC may have little or no room, even though a refinance could still add funds up to 80%. That 65% / 80% split is explained in our HELOC limit guide.

HELOC rates usually move with prime. As of the Bank of Canada's October 29, 2026 decision, prime is 4.70%; the next decision is December 9, 2026. A spread of prime plus 0.50% would be 5.20% — an illustrative spread, not an offer.

When purchase-plus is the path

Purchase-plus is not a tool for someone who already owns the home and wants to cash out. It is how a buyer finances the purchase and the planned improvements in one insured mortgage. CMHC assesses the property two ways: the as-is value, and the as-improved value after the work. The lending value is the lesser of the as-improved value, or the as-is value plus the cost of the improvements ^[5].

You will need documentation to support that as-improved figure — an improvement list and cost estimates, plans for a larger renovation, or a building permit ^[5]. If the improvements are 10% or less of the as-improved value, the extra funds can be advanced in one shot. If they are more than 10%, the lender uses progress advances (CMHC can validate up to four under its Full Service option) ^[5].

There is an insurance premium, which may be added to the loan. On the 90.01% to 95% loan-to-value band, CMHC's published homeowner premium is 4.00% of the total loan amount ^[5]. Other insurers offer their own purchase-plus-improvement programs with their own conditions.

A worked example (illustrative)

Suppose you own a $700,000 home with a $350,000 mortgage and you have accepted an $80,000 quote to finish a basement suite.

• Refinance: the new mortgage would be $430,000, about 61% of value, under the $560,000 (80%) cap ^[1]. At an assumed 4.29% over 25 years, the payment would be about $2,330 a month, versus about $1,897 on the $350,000 loan — roughly $433 more per month. You would also face whatever penalty and closing costs apply if you break a closed term.
• HELOC: unused room under the 65% line is about $105,000, so $80,000 fits in this illustration. Interest-only on $80,000 at an assumed 5.20% is about $347 a month, and it falls as you repay what you drew. You do not amortize the principal unless you set up a payoff plan.
• Purchase-plus (different household): a buyer agrees to pay $620,000 for a house and budgets $80,000 of work. If the as-improved value comes in at $700,000, the lending value is $700,000 ^[5]. The minimum down payment on a 1- or 2-unit homeowner loan is 5% of the first $500,000 and 10% of the rest, or $45,000, so the maximum loan is $655,000 ^[5]. A 4.00% insurance premium on $655,000 would be about $26,200 if the loan sits in the 90.01–95% band ^[5].

Payments, rates and the premium in this example are illustrations as of November 8, 2026, not offers. Canadian mortgages compound semi-annually; the payments were calculated that way. Your appraisal, quote and credit decide the real numbers, OAC.

How to choose, step by step

1. Write down the project. A list of work and at least one detailed quote (two is better) is what the lender and the appraiser will use.
2. Check your current mortgage. Balance, rate, maturity date and the estimated penalty if you would break it mid-term.
3. Measure the two caps. 65% of today's value minus your mortgage is a starting point for HELOC room; 80% minus your mortgage is the usual refinance room ^[1][4].
4. If you are buying, ask whether the work can be written into a purchase-plus structure before you waive conditions ^[5].
5. Compare the monthly cost and the total interest on the amount you actually need, not the maximum you could borrow. A mortgage payment calculator helps for the refinance side.

To refinance for a renovation in Canada, match the product to the timeline: a refinance when the cost is fixed and you want it amortized, a HELOC when you want to draw as the work proceeds inside the 65% revolving cap, and purchase-plus when you are buying the house that needs the work. Next step: start a refinance application or read more on financing a renovation.

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, payments and premiums are for illustration only, as of November 8, 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend or fund mortgages directly. Licensed across Canada — see our licences.

Worked examples use assumed home values, balances, a 4.29% refinance rate, a prime-plus-0.50% HELOC spread (prime 4.70% as of the October 29, 2026 Bank of Canada decision) and CMHC's published Improvement premium schedule. Semi-annual compounding over 25 years. Insurer and lender rules vary. 8Twelve does not fund second or private mortgages; we arrange them with third-party lenders, and any lender or brokerage fees are disclosed in writing before you commit.