How Mortgage Refinancing Works in Canada
Refinancing your mortgage in Canada means replacing your existing mortgage with a new one, either with the same lender or a different one. The new mortgage pays off the old one, and you continue making payments under the new terms. This can be done to secure a lower interest rate, change your payment schedule, or access equity built in your home.
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of Canada
Current Refinance Rate Landscape in Canada
As of June 2026, the Bank of Canada's volume-weighted average interest rate for new 5-year fixed-rate mortgages was 4.01% for insured mortgages and 4.35% for uninsured mortgages. For variable-rate mortgages, the average was 3.79% for insured and 3.90% for uninsured. These averages are based on funds advanced by chartered banks and reflect the overall market, but individual lender offers can vary.
When comparing rates, it's important to distinguish between the Bank of Canada's aggregate averages and quotes from specific lenders, which may be higher or lower depending on the borrower's profile and the type of mortgage. Always check with lenders for the most current rates and terms.
Sources: Bank of Canada, Government of Canada, Financial Consumer Agency of Canada
Factors to Consider Before Refinancing
Before deciding to refinance, consider several key factors. First, your current mortgage balance and the amount of equity you have. Second, the costs involved, including legal fees, appraisal fees, and prepayment penalties. Third, the new interest rate and whether it will actually lower your payments or provide other benefits.
Your credit score plays a role in the rate you'll be offered. A higher credit score typically qualifies you for lower rates. Additionally, you'll need to pass the mortgage stress test when refinancing with a federally regulated lender, which ensures you can afford payments at a higher rate.
- Current mortgage balance and appraised home value
- Prepayment penalties on your existing mortgage
- Fees for legal work and appraisal
- New interest rate and monthly payment impact
- Your credit score and debt-to-income ratio
- Whether you need to pass the mortgage stress test
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of Canada
Step-by-Step Refinancing Process
Refinancing in Canada typically follows these steps:
First, shop around and compare offers from different lenders, including your current lender. Use current rate data and consider the total cost of refinancing. Next, choose a lender and submit an application, providing documentation such as income proof and property details. The lender will order an appraisal to determine your home's current value.
Once approved, you'll receive the new mortgage commitment. Review the terms carefully, including the interest rate, amortization period, and any penalties. If you're switching lenders, your current lender will provide a discharge statement showing the outstanding balance and any penalties. The new lender will arrange for the legal transfer, and on the closing date, the new mortgage pays off the old one.
- Compare rates and costs from multiple lenders.
- Apply with your chosen lender and provide required documents.
- Get a home appraisal to confirm the property value.
- Review the mortgage commitment and understand all terms.
- Arrange for the discharge of the old mortgage and legal transfer.
- Close the new mortgage and start making payments.
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of Canada
Calculating Your Break-Even Point
The break-even point is the time it takes for the savings from a lower interest rate to cover the costs of refinancing. To calculate it, divide the total costs by the monthly savings. If you plan to stay in the home longer than the break-even period, refinancing may be worthwhile.
Keep in mind that your monthly savings depend on the difference in rates, the outstanding principal, and the remaining amortization. A lower rate can reduce your payment, but a longer amortization could offset that. Use a mortgage payment calculator to estimate your new payment, and factor in all fees.
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of Canada
Prepayment Penalties and How to Minimize Them
When you refinance before the end of your mortgage term, you're breaking your contract, which typically triggers a prepayment penalty. For variable-rate mortgages, the penalty is usually three months' interest. For fixed-rate mortgages, it's generally the greater of three months' interest or the interest rate differential (IRD), which can be larger depending on how much your rate differs from current rates.
To minimize penalties, ask your lender for an exact payout statement. Some lenders may allow you to blend and extend, or port your mortgage to a new property. If you're switching lenders, check if the new lender will cover some or all of the penalty as an incentive, though this is not guaranteed.
- Three months' interest penalty for variable-rate mortgages
- Interest rate differential (IRD) for fixed-rate mortgages
- Ask for a payout statement to know the exact penalty
- Consider whether your lender can waive fees for larger loans
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of Canada
Alternatives to Refinancing
If refinancing doesn't make sense due to costs or penalties, consider alternatives. You might be able to request a rate hold from your current lender or renegotiate your rate at the end of your term. A home equity line of credit (HELOC) is another option to access equity without breaking your mortgage.
Another alternative is a second mortgage, though this usually comes with higher interest rates. Also, if you're looking to pay off your mortgage faster, you could increase your payment frequency or make lump-sum payments if your prepayment privileges allow.
A blend-and-extend option can let you extend your mortgage term early without paying a prepayment penalty. The lender blends your existing rate with the current rate to create a new rate for a longer term. This can be a useful alternative if you want to lock in a rate without the cost of breaking your current contract.
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of Canada
Frequently asked questions
What is the typical cost to refinance a mortgage in Canada?
Refinancing often involves several fees: legal fees, an appraisal fee, and possibly a discharge fee. Costs can vary widely depending on the lender and province. The exact amount is best obtained from your lender or a mortgage broker.
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of CanadaHow does my credit score affect refinance rates?
Your credit score influences the interest rate you're offered. A higher credit score typically qualifies you for lower rates, as it reduces the lender's credit risk. Maintaining a good credit score can help you secure more favorable terms.
Sources: Bank of CanadaCan I refinance with the same lender?
Yes, you can refinance with the same lender. In that case, you may avoid some fees, such as discharge or legal fees. However, prepayment penalties may still apply if you're breaking your current term. Some lenders may offer incentives or streamline refinancing for existing customers.
Sources: Government of Canada, Financial Consumer Agency of Canada, Bank of CanadaSources
- Interest rates charged for new and existing lending by chartered banks — Bank of Canada
- Breaking your mortgage contract — Government of Canada, Financial Consumer Agency of Canada
- Notes on Canadian interest rates — Bank of Canada
- What’s behind your mortgage rate — Bank of Canada
- What's behind your mortgage rate — Bank of Canada