Should You Refinance Your Mortgage in 2026? What Canadian Homeowners Need to Know

Your mortgage renewal notice lands in the mailbox. Rates have shifted since you last signed. Should you refinance now or stick with what you’ve got?

That’s the question thousands of Canadian homeowners are wrestling with right now. With mortgage rates fluctuating and the Bank of Canada’s policy rate sitting at 2.25%, refinancing your mortgage could save you money, unlock equity, or help you consolidate high-interest debt. But it’s not always the right call.

Here’s what you need to know before you decide.

What Is Refinancing Your Mortgage in Canada?

Refinancing means replacing your existing mortgage with a new one — usually with different terms, a different rate, or access to your home equity. It’s not the same as a renewal. When you renew, you’re continuing your mortgage with your current lender, often at a new rate. When you refinance, you’re changing the deal entirely.

Most Canadians refinance to save on interest or access cash. According to CMHC, homeowners can tap up to 80% of their home’s value when they refinance an uninsured mortgage. That’s a big chunk of equity if you’ve built it up over the years.

The catch? You’ll likely pay a penalty if you refinance before your term ends. We’ll get to that.

When Does Refinancing Your Mortgage Actually Make Sense?

Refinancing works best when the benefits outweigh the costs. Here’s when it’s worth considering:

You’re at the end of your term. No penalty here. This is the cleanest time to refinance. You can shop around, compare rates, and switch lenders without breaking your contract.

Rates have dropped significantly. If current rates are 1% or more below your existing rate, refinancing could save you thousands over the life of your mortgage. A $400,000 mortgage at 5% costs you way more than the same loan at 3.5%.

You’ve got expensive debt. Credit card interest can hit 20%. Your mortgage rate? Probably closer to 3-4%. Consolidating that debt onto your mortgage means one lower payment instead of juggling multiple high-interest accounts.

You need cash for something big. Home renovations, tuition, a new vehicle — if you’ve built up equity, refinancing lets you borrow against it. Just make sure the project or purchase is worth the added debt.

Not every situation calls for a refinance. If you’re only a year into a five-year term and rates have barely budged, the penalty might eat up any savings.

How Much Does It Cost to Refinance Your Mortgage in Canada?

Refinancing isn’t free. Here’s what you’ll pay:

Prepayment penalties. Break your mortgage early, and you’ll owe a penalty. For fixed-rate mortgages, that’s usually three months’ interest or the Interest Rate Differential (IRD), whichever is higher. IRD can be brutal — sometimes $10,000 or more. Variable-rate mortgages typically charge only three months’ interest, which is easier to stomach.

Legal and appraisal fees. Expect $1,000-$1,500 for legal work and another $300-$500 for an appraisal. Some lenders cover these costs if you’re switching to them, but don’t count on it.

Application and discharge fees. Your old lender charges a discharge fee (usually $200-$400) to release the mortgage. Your new lender might charge an application fee too.

Add it all up, and refinancing can cost $2,000-$15,000 depending on penalties. That’s why timing matters.

How Do I Know If I’ll Save Money by Refinancing?

Run the numbers before you commit. Here’s a simple way to check:

Calculate your penalty. Ask your lender for the exact figure. Don’t guess.

Compare your current rate to what’s available today. If you’re at 4.5% and you can get 3.2%, that’s a 1.3% spread. On a $400,000 mortgage over 20 years, that saves you roughly $70,000 in interest.

Subtract your refinancing costs. If the penalty is $8,000 and legal fees are $1,500, you’re spending $9,500 upfront. Do you save more than that over the life of the mortgage?

If the math works, refinancing makes sense. If not, wait until your term ends.

Can I Refinance to Access My Home Equity?

Yes. This is one of the most common reasons to refinance. If your home has gone up in value or you’ve paid down your mortgage, you’ve built equity. Refinancing lets you borrow against it.

Here’s the rule: you can refinance up to 80% of your home’s value if your mortgage is uninsured. Let’s say your home is worth $600,000 and you owe $300,000. That’s 50% loan-to-value. You could refinance up to $480,000 (80% of $600,000) and pocket $180,000 in cash.

That cash can fund renovations, pay for education, or cover an emergency. Just remember — you’re adding to your mortgage balance, which means higher payments unless you extend your amortization.

One more thing: if you’re refinancing to build a secondary suite and your mortgage is insured, you can access up to 90% of your home’s value starting in 2025. That’s a new rule designed to encourage more rental housing.

What About the Stress Test When You Refinance?

Here’s where things changed recently. If you’re refinancing with your current lender and not adding to your mortgage balance, you don’t need to pass the stress test as of November 2024. That’s a big deal for homeowners who want to switch from variable to fixed (or vice versa) without proving they can afford a higher rate.

But if you’re switching lenders or increasing your loan amount — say, to access equity — you’ll still need to qualify at the higher of your contract rate plus 2% or the benchmark rate (currently 5.25%). That’s the stress test.

The stress test can be a barrier if your income has dropped or your debt has gone up. Your credit score matters here too — lenders want to see 650+ for most refinances.

Should I Refinance to Consolidate Debt?

Maybe. Debt consolidation is one of the smartest uses of a refinance if you’re carrying high-interest balances. Let’s say you’ve got $30,000 in credit card debt at 19.99% interest. Your mortgage rate is 3.5%. Refinancing to fold that debt onto your mortgage saves you thousands in interest.

But here’s the thing: you’re trading short-term debt (credit cards) for long-term debt (a mortgage). If you don’t change your spending habits, you’ll just rack up more credit card debt on top of the bigger mortgage. Not gonna lie, that’s a trap a lot of people fall into.

Debt consolidation works best if you’ve got a plan to stay debt-free after the refinance. Otherwise, you’re just kicking the problem down the road.

Can I Switch from Variable to Fixed (or Vice Versa) When I Refinance?

Absolutely. Refinancing is your chance to change your mortgage product entirely. If you’ve got a variable-rate mortgage and you’re tired of the uncertainty, you can lock in a fixed rate. Or if you’ve got a fixed rate and you think rates are heading lower, you can switch to variable.

Just know that switching products mid-term usually triggers a penalty unless you’re at renewal. If you’re not at the end of your term, the penalty might wipe out any savings from the switch.

Bottom line: switching products makes the most sense when you’re refinancing at renewal or when the rate difference is big enough to justify the penalty.

How Do I Refinance My Mortgage in Canada?

The process is similar to getting your first mortgage. Here’s what to expect:

Check your home’s value. You’ll need an appraisal to confirm what your home is worth today. Lenders use this to calculate how much equity you can access.

Shop around for rates. Don’t just stick with your current lender. Compare offers from banks, credit unions, and mortgage brokers. Rates can vary by 0.5% or more between lenders.

Get pre-approved. This locks in a rate for 90-120 days and tells you exactly how much you can borrow. Getting pre-approved also helps you move fast if rates start climbing.

Apply and close. Once you’ve picked a lender, you’ll submit an application, provide income docs, and wait for approval. Closing takes 2-4 weeks on average.

One tip: if you’re switching lenders, make sure your new lender knows your timeline. You don’t want to miss your renewal date and end up on a higher default rate.

Frequently Asked Questions

Can I refinance my mortgage before my term ends without a penalty?

No. If you refinance before your term ends, you’ll pay a prepayment penalty — either three months’ interest or the Interest Rate Differential (IRD), whichever is higher for fixed-rate mortgages. Variable-rate mortgages typically charge only three months’ interest. The only way to avoid a penalty is to wait until your term is up.

How much equity do I need to refinance my mortgage in Canada?

You can refinance up to 80% of your home’s value if your mortgage is uninsured. For example, if your home is worth $500,000, you can borrow up to $400,000 total. If you’re refinancing to build a secondary suite with an insured mortgage, you can access up to 90% starting in 2025.

Does refinancing hurt my credit score in Canada?

Refinancing can cause a small, temporary dip in your credit score because lenders run a hard inquiry when you apply. However, if you make your new mortgage payments on time and avoid taking on additional debt, your score should recover within a few months. The impact is usually minimal.

Can I switch lenders when I refinance in Canada?

Yes. You can refinance with your current lender or switch to a new one. Switching lenders often gets you a better rate, but you’ll need to pass the stress test if you’re increasing your loan amount or accessing equity. If you’re just renewing at the same balance, you may not need to qualify again.

What’s the difference between refinancing and renewing my mortgage?

Renewing means continuing your mortgage with your current lender at the end of your term, usually at a new rate. Refinancing means replacing your mortgage entirely — you can change lenders, access equity, or adjust your terms. Refinancing mid-term triggers a penalty; renewing at term-end does not.