Refinancing lets you borrow against the equity you’ve built in your home, often at a lower rate than other forms of credit. Homeowners use it to renovate, consolidate high-interest debt, help family, or invest. But it also resets part of your mortgage, can trigger a prepayment penalty, and increases the amount you owe on your home.
Before you refinance, it helps to understand how much you can actually access, what it costs, and how it compares with other options like a home equity line of credit (HELOC).
How much equity can you access?
In Canada, a refinance is capped at 80% of your home’s appraised value, minus what you still owe. Mortgage insurance isn’t available on refinances, so you always need to leave at least 20% equity in the home.
Example: a $800,000 home with a $380,000 mortgage
Refinance, HELOC or second mortgage?
Common ways to tap home equity
Refinance
Replace your mortgage with a bigger one
- Up to 80% of value
- Usually the lowest rate
- Lump sum, amortized payments
- May trigger a penalty mid-term
HELOC
A revolving line of credit
- Revolving portion up to 65% of value
- Borrow and repay as needed
- Variable rate, often prime plus
- Interest-only minimums make it easy to carry debt too long
Second mortgage
A separate loan behind your first
- Keeps your first mortgage intact
- Higher rates and fees
- Often short-term
- Used when breaking the first is costly
Refinancing to consolidate debt
One of the most common reasons to refinance is to replace high-interest debt with mortgage-rate debt. The savings can be large, but only if the debt stays paid off.
First-year interest on $40,000 of debt
What refinancing costs
Typical refinance costs
| Cost | What to expect |
|---|---|
| Prepayment penalty | Three months’ interest or an IRD if you refinance mid-term. Can be zero at renewal. |
| Appraisal | $300 to $600, sometimes covered by the lender |
| Legal fees | Often $800 to $1,500 |
| Discharge fee | About $200 to $500 if you change lenders |
| Rate difference | A refinance rate may be higher than a straight renewal or switch rate |
Because of the penalty, the cheapest time to refinance is usually at renewal. If you need funds mid-term, ask your lender about a blend-and-increase, which blends your current rate with a new rate on the additional amount and may avoid the penalty.
Other things to consider
- Amortization: resetting to 25 or 30 years lowers the payment but increases total interest.
- Rate type: a refinance is a chance to choose fixed or variable again.
- Renovations: CMHC has a program that allows refinancing up to 90% of value to add a secondary suite, with specific eligibility rules. Ask a lender or broker if it fits your plans.
- Investment use: if you borrow to invest, interest may be tax-deductible in some cases. Speak with a tax professional first.
A step-by-step refinance plan
Define the goal
Know exactly how much you need and why.
Estimate your equity
Use recent sales in your area, then confirm with an appraisal.
Get your penalty quote
Ask your lender for a written payout and penalty figure.
Compare options
Price a refinance, a blend-and-increase, a HELOC and, if needed, a second mortgage.
Plan the payoff
Decide how quickly you’ll repay the new borrowing, especially for consolidated debt.
Examples use illustrative rates and Canadian semi-annual compounding, and are rounded. They are not rate quotes or advice. Last reviewed September 2026.