Refinancing, explained in numbers
What a refinance is, how much equity you can reach, what it costs to break a term, and how a consolidation changes monthly cash flow — walked through on one illustrative Toronto file.
At A Glance
How much you can reach, what it costs to get there, and what you have to qualify for.
80%
Loan-to-value ceiling on a refinance in Canada
3
Months of interest, the minimum penalty to break mid-term. On a fixed rate, the IRD if greater
+2%
Stress test: qualify on the new amount at the contract rate plus 2%, or the minimum qualifying rate floor if higher
Scroll to walk through it.
01 · Accessible Equity
A refinance replaces your current mortgage with a new one, often larger, before or at maturity. In Canada the new mortgage can reach 80% of the appraised value. On a $900,000 home with $600,000 owing, that leaves $120,000 you can reach.
Illustrative. 80% of $900,000 is $720,000; less the $600,000 balance leaves $120,000.
02 · Refinance vs. HELOC
A refinance is amortizing: one new mortgage, one payment, one payoff horizon. A HELOC is revolving: draw what you need, repay it, draw again. One suits a lump sum with a defined purpose; the other suits ongoing access.
Refinance
HELOC
Structure
One new mortgage, amortizing
Revolving line, secured by the home
Access
Lump sum at funding
Draw and repay as needed
Payment
Principal and interest on a schedule
Interest on the amount drawn
Fits
A defined project, consolidation, or a lower rate
Ongoing or staged access to equity
03 · Consolidation
Rolling an $18,000 card at 20% and a $25,000 car loan into the mortgage trades their rates for a mortgage rate and spreads the balance over 25 years. The monthly outlay falls. Total interest depends on how quickly you pay the new balance down.
Illustrative. Before: $3,321 mortgage at 4.50%, $540 card minimum on $18,000 at 20%, $501 car loan on $25,000 at 7.5% over 5 years. Card minimum assumed at 3% of the balance. After: $3,559 on $643,000 at 4.50% over 25 years.
04 · The Steps
An appraisal sets the value, and with it the 80% ceiling. Approval means qualifying on the full new amount under the stress test. Your lawyer discharges the old mortgage, registers the new one, and the funds are advanced.
The order of a refinance. Approval is on the full new amount at the stress test. Costs along the way: appraisal, legal, and discharge and registration fees.
05 · Cash Flow
In the illustrative case, monthly outlay drops from $4,362 to $3,559. Set against that: a longer amortization, and a prepayment penalty if you break mid-term. It is a numbers decision, and we run the numbers before you decide.
$803
per month, illustrative
$4,362 to $3,559 a month; amortization resets to 25 years.
Fit
Questions
Up to 80% of the appraised value of your home, less what you still owe. On a $900,000 home with a $600,000 balance, that is $120,000 of accessible equity. You must also qualify on the full new amount under the stress test: the higher of your contract rate plus 2% or the minimum qualifying rate. Illustrative figures.
Breaking a mortgage before maturity triggers the prepayment penalty. On a fixed rate, that is the greater of three months' interest or the interest-rate differential (IRD), which can be large when rates have fallen. On a variable rate, typically three months' interest. Add appraisal, legal, and discharge and registration costs. At maturity there is no penalty, so timing matters.
A refinance replaces your mortgage with a new, amortizing loan: one payment, one payoff schedule. A HELOC is a revolving line secured by your home: you draw, repay, and draw again. A refinance suits a one-time lump sum with a defined purpose; a HELOC suits ongoing access. Both depend on your equity and on qualifying.
It can. A refinance is a new mortgage, so the amortization is set again. Extending it lowers the monthly payment and increases the interest paid over the life of the loan; shortening it does the opposite. The illustrative example on this page resets to 25 years, which is part of why the monthly outlay falls.
Educational content, not advice and not a commitment to lend. Rates and figures are illustrative examples, not quotes — rates change daily and depend on your file. Mortgage services provided by Matthew Im, Mortgage Agent Level 1 (Licence #M24000738), Get A Better Mortgage Inc., FSRA Brokerage Licence #10874. Speak to an accountant about tax questions.
Run Your Numbers
Your balance, your value, your penalty — a real read across 97+ lenders before you commit to anything.
