Guide · Canada
Canada Mortgage Refinancing Guide: Rules and Costs
Last updated 2026-06-27 · Published 2026-06-27
Learn how to refinance your mortgage in Canada. Understand the costs of breaking a mortgage, prepayment penalties, equity limits, and the break-even point.
What Is Mortgage Refinancing?
Mortgage refinancing involves breaking your current mortgage contract and replacing it with a new one. Homeowners typically refinance to access home equity (cash out), consolidate high-interest debts, or secure a lower interest rate.
Refinancing is different from renewing. Renewal happens at the end of your mortgage term, while refinancing can be done at any time, usually incurring a prepayment penalty if done before your term ends.
Prepayment Penalties: Fixed vs. Variable
If you refinance before the end of your term, your lender will charge a prepayment penalty. The calculation method depends on whether you have a fixed or variable rate.
For variable-rate mortgages, the penalty is typically three months' interest. For fixed-rate mortgages, the penalty is the greater of three months' interest or the Interest Rate Differential (IRD). The IRD compares your contract rate with current market rates and can be extremely expensive, sometimes costing tens of thousands of dollars.
Equity Take-Out Limits in Canada
Under Canadian banking regulations, you can refinance up to a maximum of 80% of your home's appraised value, minus your remaining mortgage balance.
For example, if your home is appraised at $500,000, the maximum total loan amount is 80% ($400,000). If you owe $250,000 on your current mortgage, you can cash out up to $150,000.
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Go to calculator →Frequently asked questions
What is the Interest Rate Differential (IRD)?
The IRD is a penalty calculation used for breaking fixed-rate mortgages. It is based on the difference between your current interest rate and the rate the lender can charge for a new mortgage for the remaining term, multiplied by your outstanding balance.
Is refinancing a mortgage free?
No. On top of prepayment penalties, refinancing typically requires an appraisal fee ($300 - $500) and legal fees ($800 - $1,500) to register the new mortgage charge against your property.
Educational content only—not mortgage, tax, or legal advice. Confirm any decision with a licensed professional in your jurisdiction.