Refinancing: What It Means in Ontario Real Estate

In short

You'll need to qualify again, and there can be legal fees and a penalty if you break your term early.

Done well, it can fund a renovation or replace high-interest debt with a lower rate.

How refinancing works

Refinancing replaces your current mortgage with a new one, often for a larger amount. People refinance to access home equity, consolidate higher-interest debt, change their rate or term, or pay for renovations.

Because it's new borrowing, you have to qualify again: income, credit, debt ratios and the stress test. The lender will usually order an appraisal to confirm your home's value.

A refinance is different from a straight switch at renewal, which moves the same balance to a new lender without new borrowing.

How much can I refinance in Canada?

Federally regulated lenders can't lend more than 80% of your home's value on an uninsured mortgage, so most refinances top out at 80% loan-to-value. A home equity line of credit on its own is limited to 65% of the value, within that same 80% combined total.

Standard insured mortgages can't be used to refinance. One exception: since January 15, 2025, insured refinancing is available for adding a secondary suite, with the extra financing limited to the project cost. Ask your lender if it offers this program.

Your lender may suggest alternatives, such as a home equity line of credit or a blended rate with your existing lender. A blend-and-extend can sometimes avoid a full penalty, so ask about it.

What it costs

Refinancing mid-term usually triggers a prepayment penalty: typically the higher of three months' interest or the interest rate differential on a fixed rate. Expect legal fees and possibly appraisal and discharge fees too.

Refinancing at renewal avoids the penalty. In Ontario, a real estate lawyer registers the new mortgage on title.

Is it worth it?

Compare the total cost of the penalty and fees with what you'd save in interest. Rolling short-term debt into a 25 or 30 year mortgage can lower payments but cost more over time unless you pay it down faster.

For a renovation, get contractor quotes before you apply so you borrow what you need. Talk with your lender, and with a financial adviser if you're consolidating debt.

Common questions about refinancing

How much equity can I take out of my home in Canada?

Most lenders cap your total mortgage borrowing at 80% of your home's appraised value. Your available equity is that 80% minus what you already owe. A home equity line of credit alone is capped at 65% of value. The appraised value sets the ceiling.

Do I have to pass the stress test to refinance?

Yes, a refinance is new borrowing, so federally regulated lenders qualify you at the greater of your contract rate plus 2% or 5.25%. That is different from a straight switch at renewal, which is exempt. Your income and debts are reviewed again.

What does it cost to refinance a mortgage in Ontario?

The main costs are any prepayment penalty if you're mid-term, plus legal fees and often an appraisal. Penalties are usually the higher of three months' interest or the interest rate differential. Ask your lender for the exact penalty before deciding.

When is the best time to refinance?

Often at renewal, because you avoid a prepayment penalty. Refinancing mid-term can still make sense if the savings or need outweigh the penalty and fees. Run the numbers with your lender before committing. Start the process a few months before your term ends.

Sources

General information for Ontario, updated October 2026. Not legal, tax or mortgage advice. Rules change, so confirm with your lawyer, lender or the source above before you rely on it.