How to Refinance Your Mortgage in Canada: Steps, Costs and Checklist

Refinancing means replacing your mortgage with a new one: to borrow more against your home, to change your rate or amortization, or to move to another lender. This guide covers how much you can borrow, how lenders qualify you, the costs to ask about, and a step-by-step checklist from the penalty quote to closing. It is part of the refinancing and home equity hub. To decide whether refinancing pays for you, see when to refinance your mortgage; to borrow against your equity as a lump sum, see cash-out refinancing.

Refinancing, renewing, switching and blending

What separates these four is whether the loan changes and whether you break your contract before the term ends.

On a closed mortgage, FCAC says that if you break the contract “you normally pay a prepayment penalty”. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. How mortgage penalties are calculated works through the methods, and blend-and-extend covers the alternative that avoids the penalty. Renewal vs refinance compares the end-of-term options.

How much you can borrow

Under the Bank Act, a bank's loan to buy, renovate or improve a home, or a refinance of such a loan, together with any mortgage ranking equal to or ahead of it, can't exceed 80% of the home's value. The limit counts any HELOC or second mortgage registered on the home, and the lender measures it against an appraised value, not your own estimate.

Insured refinancing for secondary suites. Mortgage insurance can't lift an ordinary refinance above that limit: under the federal mortgage insurance rules, an insured high-ratio loan has to be for buying the home or for paying off an earlier uninsured low-ratio loan. The one insured refinance is for adding secondary suites: since January 15, 2025, a home you or a close relative live in can be refinanced with mortgage insurance up to 90% of its as-improved value to build additional units, up to 4 units in total, and the extra money can only pay for the construction, with no equity taken out. CMHC Refinance also requires the as-improved value to be below $2 million. See secondary suite incentives.

How lenders qualify you

A refinance is underwritten as a new mortgage, so your income, debts, credit and the home’s value are checked again. FCAC lists, as one downside of breaking a mortgage, that “you may no longer qualify for a mortgage under the current economic conditions”.

• Stress test. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. A refinance is stress-tested like a new mortgage: since November 21, 2024, OSFI exempts a stand-alone uninsured mortgage from the test only when it moves at renewal from one federally regulated lender to another with no increase in the remaining amortization and no increase in the loan amount beyond $3,000 for the costs of the move (a straight switch). Details: the mortgage stress test.
• Debt service ratios. For an insured mortgage, CMHC caps your housing costs at 39% of gross income (GDS) and your housing costs plus other debt payments at 44% (TDS); lenders set their own limits for uninsured mortgages. A conventional refinance is uninsured, so the lender’s own limits apply. See GDS and TDS explained.
• Credit. FCAC: “Each lender sets their own lending guidelines and policies”, and a lender may refuse a mortgage because of a poor credit history.

What refinancing costs

The Financial Consumer Agency of Canada lists the costs to ask about before you break a mortgage, and the fees for borrowing against home equity:

Federally regulated lenders have to disclose the discharge fee in your mortgage contract, and FCAC notes that lenders “may be willing to pay some of all the fees” when you set up a new mortgage, so it is worth asking each lender which costs it covers. On a closed mortgage, FCAC warns the penalty “can cost thousands of dollars”: how mortgage penalties are calculated explains the methods, the mortgage penalty calculator estimates it, and breaking a mortgage at the Big Five banks compares the banks’ disclosures.

Is it worth it? The break-even test

The basic test compares what refinancing costs with the interest it saves. At the same balance and amortization, a lower rate lowers the payment and also leaves a lower balance:

Saving to date = monthly payment gap × months so far + (balance at the old rate − balance at the new rate)

Break-even point = the first month in which the saving to date is more than the penalty and fees

If you expect to keep the new mortgage well past the break-even point, the refinance can pay off; if the break-even falls after you plan to sell or after the term ends, it doesn’t. When to refinance works through rate, debt consolidation and equity examples, and the break-even guide shows the fuller comparison of interest over the term.

Step-by-step refinance checklist

Step 1: Set your goal and get the penalty in writing

• Write down why you are refinancing: a lower rate, debt consolidation, cash for a project, a different amortization, or taking a co-borrower off the mortgage (for example after a separation)
• Ask your lender for the prepayment penalty as of a specific date, with the calculation, and for its administration, reinvestment and discharge fees
• Check whether you received cash back that you’d have to repay
• Note your maturity date: if renewal is close, compare against switching lenders at renewal

Step 2: Estimate your home’s value and borrowing room

• Estimate the value from recent comparable sales or a previous appraisal; the lender’s appraisal decides the final figure
• Apply the limit from how much you can borrow and subtract everything owed against the home
• Check whether your mortgage is registered as a collateral charge: FCAC notes that to move it, all loans secured by that charge (for example a line of credit or car loan) must be repaid or transferred to the new lender

Step 3: Shop and compare offers

• Ask your current lender and other lenders, and consider a mortgage broker; FCAC notes that brokers “may offer a wider range of mortgage products” and are generally paid by the lender rather than by you
• For each offer, confirm the rate, term, amortization, prepayment privileges, how the new mortgage’s own penalty is calculated, which fees the lender covers, and how long the rate is held (FCAC: A preapproval can hold an interest rate for 60 to 130 days, depending on the lender.)
• Compare the offers side by side with the mortgage comparison worksheet

Step 4: Gather documents

FCAC’s preapproval page lists what lenders look at: identification, proof of employment and income, your assets and your debts. For a refinance, lenders also ask about the home and the current mortgage.

• Government-issued photo ID
• Proof of income: a recent pay stub and your position and time with the employer; if self-employed, Notices of Assessment for the past 2 years (see self-employed mortgages)
• Current mortgage statement showing the balance, rate and maturity date
• Property tax bill and proof of home insurance
• Statements for every debt, including any you plan to pay off with the refinance
• Recent bank or investment statements if the lender asks for them
• For rental income: leases and rent records (see rental income and mortgage qualification)

The mortgage document checklist has the full list.

Step 5: Apply, appraisal and commitment

• Submit the application; the lender checks your credit and verifies income
• The lender orders an appraisal; a lower value than you expected lowers the most you can borrow
• Read the commitment letter: rate, term, amortization, conditions and the date conditions must be met

Step 6: Legal work and closing

FCAC notes that a discharge is done “in most cases” with a lawyer, a notary or a commissioner of oaths.

• The lawyer or notary receives the new lender’s instructions and searches the title
• The new lender advances the funds; the old mortgage and any penalty are paid out, and if you change lenders the old charge is discharged
• The new mortgage is registered on title (a lender that already holds a collateral charge registered for more than you owe may not need a new registration)
• Any debts being consolidated are paid out, and the remaining cash is sent to you

Step 7: After closing

• Confirm the first payment date and set up payments
• If you consolidated debts, check that each old account shows a zero balance
• Note the new maturity date, and start comparing offers a few months before it, as FCAC suggests

When refinancing may not pay

Alternatives to refinancing

Refinancing and taxes

Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains. So if part of a refinance is invested or used for a rental, only the interest on the part you can trace to that use can qualify. Is mortgage interest deductible on a rental? and the Smith Manoeuvre guide cover the details.

Related pages

• When should I refinance my mortgage?
• Cash-out refinance in Canada
• Refinancing online: the digital process
• Should I break my mortgage for a lower rate?
• Mortgage refinance calculator
• Mortgage discharge process
• Mortgage renewal guide