How to refinance your mortgage in Canada: Full guide 2025

Mortgage refinancing is a powerful financial strategy, but only when used correctly. Simply put, refinancing your mortgage means replacing your current mortgage with a new one from a different lender and with different terms. With 76% of mortgages in Canada up for renewal by the end of 2026, many Canadian homeowners are going to face higher interest rates than when they first locked in.

While the Bank of Canada lowered its policy rate to 3.25% in the latter half of 2024, now may be the ideal time to explore your options. That said, refinancing your mortgage isn't for everyone; it involves legal fees, lengthy paperwork, and potential penalties from your mortgage lender.

In this guide, we'll walk you through everything you need to know about mortgage refinancing, whether you're a first-time homeowner, struggling with your monthly payments, or just curious about securing a lower interest rate. For more information about how the process works, who may qualify, and how to make a smart financial decision, stick around.

What is a mortgage refinance?

Mortgage refinancing is the process of replacing your existing mortgage contract with a new one, typically to secure a lower interest rate, get a home equity line of credit, or adjust your mortgage contract. While often confused with a mortgage renewal, these terms refer to different processes:

• Mortgage refinance: Refinancing your mortgage often occurs when you switch lenders and change the terms and conditions of your loan.

• Mortgage renewal: This happens when your mortgage term comes to an end. During this time, you're able to negotiate new terms with your same lender.

When refinancing your mortgage, your mortgage amortization period (the time it takes to pay off your mortgage), monthly mortgage payments, and overall interest costs can change. Some homeowners may opt to refinance their mortgage to extend their amortization period and reduce their monthly payments, while others may choose to shorten their loan term and pay off their mortgage early to help them save money.

Before refinancing your mortgage, lenders will likely ask for the following:

• A home appraisal to determine how much equity you’ve built. As of September 2024, almost 70% of people with mortgages had loan-to-value ratios of less than 65%, meaning they had significant home equity, which makes them a good candidate.

• Legal assistance to aid with closing the old loan and registering for the new one.

• A mortgage stress test is required unless your mortgage is insured.

Popular reasons why refinancing your mortgage makes sense

If you're unsure whether refinancing your mortgage is a smart move, take a closer look at some of the most common and popular reasons why other Canadian homeowners with mortgages are doing so:

Lower mortgage rates and mortgage payments

According to Y Charts, the average 5-year fixed mortgage rate decreased from 6.31% in January 2024 to 5.22% in March 2025. If you locked in your mortgage rate years ago, it's possible that you may qualify for a lower interest rate today.

Access funds through home equity line of credit (HELOC)

Home equity made up 42% of Canadians' total wealth in 2023. Refinancing through a home equity loan allows you to borrow up to 80% of your house's appraised value, minus the sum of money you owe toward your mortgage loan, which can help you pay for large expenses like renovations, your children's post-secondary education, or new investment opportunities like an investment property.

Consolidate debt

Most Canadian credit cards have an interest rate between 19% and 21%. Now, let's say you have a debt balance of $20,000, which means you could be paying over $300 in interest per month. By refinancing your mortgage and using it for debt consolidation at a lower interest rate, you could significantly lower your monthly payments. Additionally, all your debt payments will be rolled into one monthly payment instead, saving you the hassle of juggling multiple at the same time.

Switch between fixed and variable rates

According to Reuters, in the first quarter of 2024, 12.9% of new mortgage customers chose variable-rate loans, which is up from 4.2% in the third quarter of 2023. This increase is largely contributed to falling interest rates and a growing consensus that rates will continue to decline. By refinancing your loan, you can switch from a fixed-rate mortgage to a variable-rate mortgage if you feel confident doing so, or plan to sell your home soon.

In contrast, a variable rate mortgage may be better if you like predictable payments and long-term stability that's not affected by the Bank of Canada's prime rate.

Restructure mortgage contract

Whether your spouse is being added to your mortgage, you want to change the terms and conditions of your mortgage agreement, switch lenders, or change your amortization period, refinancing your mortgage offers you the flexibility to do just that!

Who qualifies for refinancing in Canada?

Although refinancing can help you secure better mortgage terms or consolidate debt, not all homeowners automatically qualify. Mortgage lenders often have certain criteria to ensure borrowers can manage their new mortgage terms. Here’s what most mortgage lenders are looking at:

Credit score

To qualify for a mortgage refinance, mortgage lenders will be looking at your credit score beforehand and often require a minimum credit score of 600 to 620 before approval is granted. However, to secure lower interest rates, having a higher credit score is recommended. If your score is lower than what's recommended, consider paying off higher-interest debts like credit card bills and consider working with a mortgage broker who can help you find alternative lenders.

Loan-to-value (LTV) ratio

Your total mortgage balance, including any debt that you've refinanced, can't be more than 80% of your home's appraised value. For example, if your home is worth $500,000, your total mortgage balance should be $400,000 or less. With a lower loan-to-value ratio, you'll often be offered lower rates and less restrictions in your mortgage agreement.

Monthly income and employment confirmation

Having a stable monthly income and verifiable employment is essential if you're looking for a mortgage refinance. You'll typically need to show your lender pay stubs or financial statements to confirm you're bringing in a steady income each month. If you are self-employed, you'll usually need to provide two years of Notices of Assessment and other proof.

CMHC insurance considerations

If your existing mortgage has CMHC insurance or other mortgage default insurance, meaning you originally put less than 20% as a down payment on your property when you first bought it, your insurance premiums.

Interested in mortgage insurance? Contact one of our expert brokers at BrokerLink today to assist you with all of your home insurance needs.

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Mortgage refinance process: A step-by-step

If you're refinancing a mortgage for the first time, knowing how to navigate the process and what to expect can make the journey a lot less stressful. Here's what you need to do:

1. Review your existing mortgage

Start by examining your current mortgage agreement. Pay close attention to your current interest rate, how long you have left in your mortgage term, your amortization period, your current mortgage balance, and whether any prepayment penalties apply. This will help you determine whether a mortgage refinance is a smart financial decision.

2. Check your credit score and current debts

The next thing you need to do is check your credit score. You can do this by ordering a credit report from Equifax or TransUnion, which are the two credit bureaus in Canada. Remember, a higher score will help you secure potentially lower interest rates come you refinance.

So, pay off any outstanding balances you have on your credit cards and avoid new credit applications in the months leading up to your mortgage refinance to ensure your credit history reflects these improvements.

3. Shop around for interest rates

Compare interest rates from different financial institutions like banks, credit unions, and independent mortgage brokers. Consider whether you want a variable rate mortgage or a fixed rate mortgage, and look at how these different terms will impact your monthly mortgage payments.

4. Get pre-approved

Getting a pre-approved mortgage will give you a better idea of what you can borrow from your new lender. It will also help you lock in an interest rate for 90 to 120 days while you finalize all of your details.

5. Get a home appraisal & mortgage stress test

Your new lender will likely ask you to get your home appraised to determine your home’s current market value. This appraisal will ultimately determine your loan-to-value ratio and how much you can borrow.

6. Prepare all your documents

You’ll need to provide documents with your mortgage refinance application, including:

• A government-issued ID.

• Recent pay stubs or tax returns (especially if self-employed).

• Mortgage and property tax statements.

• Home insurance documents.

• List of any outstanding debts you may have.

7. Submit your refinance application

Once you've chosen your new mortgage lender, you can go ahead and submit your application with supporting documents. Once submitted, they will review your documents and run a credit check to determine your eligibility.

8. Finalize your refinanced mortgage

You'll need to work with a real estate lawyer or notary to review and sign your new refinancing agreement. They will then complete your mortgage registration.

9. Close and update your budget

Once your mortgage refinance is finalized and your old mortgage has been cancelled, and you've paid your mortgage discharge fees, you'll want to update your monthly finances as your new monthly payment, amortization period, and interest rate will affect your household budget.

Pro tips

• If possible, try and refinance a mortgage as close to your mortgage renewal as possible to avoid costly penalties.

• Use a mortgage broker to help you shop around and access lenders you may not have previously considered.

Costs involved in refinancing a mortgage

Before deciding to refinance a mortgage, it is important to be aware of the costs that come with it. Beyond the prepayment penalties mentioned above, there are several other fees associated with mortgage refinancing:

Prepayment penalty

A prepayment penalty will likely apply if you choose to refinance your mortgage early. The amount of the penalty will depend on the terms and conditions of your mortgage. For example, breaking a closed fixed-rate mortgage typically has steeper financial penalties than breaking an open or variable-rate mortgage. That said, expect three months' worth of interest or an interest rate differential (IRD), which can amount to thousands of dollars.

Legal fees

As we mentioned, legal fees also apply as you'll have to hire a real estate attorney to review the necessary paperwork. Working with a lawyer in Canada can add up quickly, so you should expect this to cost around $1,000 or more, depending on what province you live in.

Mortgage discharge fee

Your current lender may charge you a discharge fee to officially close your current mortgage balance. This fee only applies if you are switching mortgage lenders. If you are refinancing your mortgage with the same lender, you will not incur this fee. Mortgage discharge fees typically range from $200 to $450, depending on where you live.

Mortgage registration fee/title insurance

Because you're essentially taking on a new mortgage balance, you'll need to register it with the province. Mortgage registration fees vary by province. For instance, in Ontario, registering your mortgage costs $77, and in Quebec, it costs $146.

Refinancing options in Canada

When it comes to refinancing, homeowners in Canada have several paths to choose from. Each option has different pros and cons depending on your financial goals:

Conventional mortgage refinance

You replace your existing mortgage with a brand new one, usually from an alternative lender. It enables you to adjust your interest rate, term, or amortization, as well as access equity in your home. Generally speaking, this is the most common route taken by Canadian homeowners.

Blend-and-extend

Some lenders offer this method as a way to help you avoid prepayment penalties. How it works is by combining your current mortgage rate with your lender's new rate and extending your term. While this can help you avoid upfront costs, it may not be the best idea if you're looking to get the lowest interest rate available.

Home equity line of credit (HELOC)

A home equity line of credit is when you borrow money against the equity in your home without replacing your mortgage agreement. You only pay interest on the amount you use, and you can reuse the credit as you repay it.

Common mistakes to avoid

To ensure your mortgage refinance benefits you and your finances, here are some common mistakes you need to avoid:

1. Breaking your contract early: Many borrowers pay thousands in penalties only to save hundreds on their payments in the end because they didn't run the numbers and consider their finances beforehand.

2. Only looking for a low interest rate: A lower interest rate doesn’t always equal lower overall costs for you. Pay special attention to longer amortizations and hidden fees.

3. Not comparing offers: Don’t take the first offer presented to you. Use comparison tools or work with a broker for assistance.

Contact BrokerLink today

With total residential mortgage debt in Canada surpassing $2.2 trillion and default rates rising to 0.20% in the latter half of 2024, it's clear that homeowners are feeling the financial heat. While refinancing can offer some relief, it's not the best option for everyone.

The key is to weigh your pros and cons while looking at your current finances and potential savings. If you have high equity in your home and you're almost up for a renewal, it may be the perfect time to consider your options.

Have further questions? Contact BrokerLink to speak with us further and to purchase affordable home insurance that protects your investment today!

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FAQs about mortgage refinancing in Canada

How does mortgage refinancing impact home insurance?

Refinancing your mortgage may impact your home insurance policy and could even result in an insurance premium increase. Since home insurance premiums are partially based on the value of your home, if the value of your home increases following the home appraisal that was required during the mortgage refinancing process, your rates could be affected. It is important to maintain the proper amount of coverage in case you were to have a total loss. Depending on how much your premium increases, changing house insurance policies might be your best bet, and an insurance broker can help you do this.

Will I need to do a home appraisal to refinance my mortgage?

Yes, your mortgage lender is likely to require a home appraisal before refinancing your mortgage. A lender needs to know the current appraised value of your home to ensure that you do not exceed the 80% threshold as borrowers can only refinance their mortgage for up to 80% of their home’s value. 

Should I refinance my mortgage to pay for home improvements?

For many homeowners, the primary motivation for wanting to refinance their mortgages is to be able to borrow more money and use that money for home improvements. Home renovations are often seen as a good investment, as they can significantly increase the value of your home, not to mention your enjoyment of your home. However, certain types of home improvements can be expensive, which is why many people need additional money to fund such a project. A mortgage refinance can be a smart option if your proposed renovations are significant. Since the cost of refinancing can be thousands of dollars, if not more, experts don’t typically recommend mortgage refinancing to pay for smaller renovation projects. However, if you were hoping to update your kitchen and the project was going to cost $25,000 or more, then refinancing your mortgage could be a great option. With mortgage refinance, you could borrow a large sum of money at a low, fixed mortgage rate to cover the cost of your renovation.

Is it difficult to get approved for mortgage refinancing?

Generally speaking, getting approved for mortgage refinancing is more difficult than getting approved for mortgage renewal. Denial rates are much higher for mortgage refinances than for mortgage renewals. It also takes more time to be approved for a mortgage refinance, so make sure you have the necessary patience. 

If you have any questions, contact one of our local branches.