In Canada, homeowners can generally borrow against home equity up to 80% of their home’s appraised value, minus the mortgage and other debts secured against it—but that is a ceiling, not an approval. A refinance at a federally regulated bank requires the borrower to pass the mortgage stress test and qualify under the lender’s affordability rules. Before proceeding, compare the cash you would actually receive with the payout penalty and transaction costs. A straight switch to a new lender at renewal may follow different rules, but it does not allow equity take-out under the federal qualifying-switch measure.
How much can you borrow against your home?
The Financial Consumer Agency of Canada (FCAC) says homeowners may usually borrow up to 80% of their home’s appraised value. The mortgage, HELOC and other loans or lines secured against the property count toward that limit. The lender’s valuation and approval determine what is available to you; the 80% figure is not a guaranteed loan amount. FCAC’s home-equity guidance explains the calculation and common borrowing options.
For example, FCAC illustrates the calculation with a home valued at $250,000: 80% is $200,000, and if $150,000 is already owed against the home, the illustrative remaining capacity is $50,000. This is a calculation example, not a valuation or borrowing promise for another homeowner.
Home-equity borrowing options
| Option | General limit and access | Rate and repayment features | Key considerations |
|---|---|---|---|
| Refinance or home-equity loan | Usually up to 80% of home value, less secured balances and subject to approval | A lump sum; fixed or variable rate | Interest applies to the borrowed amount; qualification and transaction costs apply. |
| Second mortgage | FCAC describes a limit of up to 80% of appraised value minus the current mortgage balance | A lump sum; fixed or variable rate, generally higher than a first-mortgage rate | The first mortgage remains in place. Fees can include appraisal, title, insurance and legal costs. |
| HELOC | Generally up to 65% of home value | Revolving access to funds as needed; variable rate | The rate can rise. The lender may require an appraisal and legal or notarial registration. |
| Reverse mortgage | Usually up to 55% of appraised value | Lump sum or instalments; interest accumulates | Usually for homeowners aged 55 or older. Repayment is generally due when the borrower moves, sells, dies or defaults. |
These are general product descriptions and limits from FCAC, not personalized offers or guaranteed approvals. A reverse mortgage’s interest accumulation and repayment conditions make it distinct from a conventional refinance.
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Will you have to pass the mortgage stress test?
FCAC says federally regulated lenders, including banks, require borrowers to pass the stress test for insured and uninsured mortgages. The qualifying rate is the higher of 5.25% or the mortgage’s negotiated rate plus 2%. FCAC specifically includes refinancing a home among the transactions requiring the test for an existing borrower. This qualifying rate is used to assess affordability; it is not the rate offered on the mortgage. See FCAC’s mortgage qualification guidance.
Passing a collateral limit does not mean you qualify. A lender also assesses income, expenses, debts, property costs and its underwriting requirements. Lenders that are not federally regulated may also apply a stress test, so ask the intended lender which qualification rules apply to your application.
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What does it cost to break a mortgage and refinance?
Refinancing before a closed mortgage term ends may require you to break or pay out the current mortgage, triggering a prepayment charge. The mortgage agreement controls the calculation. FCAC’s examples include a charge equal to the greater of three months’ interest or an interest-rate differential (IRD), but that is not a universal Canadian formula. Ask your current lender for a written payout statement, including the charge, other amounts due and the quote’s expiry date. The amount can change over time.
For covered federally regulated lenders, FCAC’s Mortgage Prepayment Information Code requires explanations of prepayment privileges and penalty calculations, personalized information to help estimate charges, and details of other amounts due. Sample disclosures from FCAC show how a particular contract may use the greater of three months’ interest or an IRD and list other charges, including discharge, appraisal and default fees. The samples illustrate possible terms, not the terms of every mortgage: check your own agreement and the lender’s written calculation. See the fixed-rate mortgage example and variable-rate mortgage example.
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Include transaction costs in the comparison
Depending on the transaction, costs may include:
- Appraisal and title search
- Title insurance
- Legal fees; a notary may be involved in Québec
- Lender administration or discharge fees
- A new mortgage loan insurance premium, where applicable
FCAC does not give one nationwide price for these items. Get estimates for your property, lender and transaction rather than relying on a general fee figure.
Calculate the cost over the time you expect to keep the mortgage
Compare the total cost of keeping the existing mortgage with refinancing over your intended holding period. Include the payout penalty, the proposed rate and term, amortization, transaction fees, any applicable insurance premium, and how long and why you need the funds. A lower payment can result from extending amortization; that can increase total interest paid, so payment reduction alone does not establish that refinancing saves money. Use actual written lender quotes for the comparison.
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- CONFIDENTLY AND EASILY SOLVE: Clients' financial questions whether they're buyers, sellers, investors or renters. Increase your perceived professionalism as a new agent, experienced broker or seasoned loan officer. Close more home sales and impress your clients with fast, accurate answers to all their real estate finance questions from PITI Payments to IRR, NPV and Cashflows
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- FIGURE OUT THE RIGHT LOAN: For your client at the press of a button for jumbo, conventional, FHA/VA, or even 80:10:10 or 80:15:5 combo loans; check to see if ARMs or bi-weekly loans, quarterly payments or if interest-only payments are the answer; giving your client more choices; easily perform what if loan or TVM calculations find loan amount, term, interest or PITI or PI payments
- BECOME AN INVALUABLE RESOURCE: To your clients by reducing their confusion and uncertainty; ensuring they are able to make a purchase offer; knowing they can afford the down payment; and determining which is the right loan for them. Date-math for listings and contracts too. Comes with a protective slide cover, quick reference guide, pocket user's guide, and long-life battery
Is a refinance different from switching lenders at renewal?
Yes. Renewing with your current lender, switching lenders at renewal, and refinancing to change terms or borrow extra money are distinct transactions. A federal measure can remove the minimum qualifying rate requirement for certain low-ratio mortgage switches at renewal, but it is not a general stress-test exemption for borrowers taking equity out.
The Department of Finance Canada’s December 2024 backgrounder says the measure applies to qualifying mortgage-insurance applications submitted on or after December 16, 2024. Conditions include that the mortgage originated at a federally regulated institution and was previously stress-tested, the switch happens at renewal, the existing amortization schedule is maintained, and any balance increase is limited to $3,000 for related transaction costs. Equity take-out is not permitted under the measure. Read the Department of Finance Canada backgrounder, and confirm eligibility and current implementation with the lender and insurer.
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How to compare refinance offers
Compare offers on the costs and terms that affect your situation, not just the advertised rate. Ask each lender or broker for written figures so you can compare like with like.
Quick Recap
- Total cost: Compare costs through the period you expect to hold the mortgage, including penalties and transaction fees.
- Rate and term: Check whether the rate is fixed or variable and how long the term lasts.
- Payment and amortization: Compare payment amounts alongside the amortization schedule and total borrowing cost.
- Net cash available: Subtract the payout charge and fees from the new borrowing to see how much would actually be available.
- Future flexibility: Compare prepayment privileges and the potential cost of breaking the new mortgage early.
- Access to funds: Decide whether you need a lump sum or revolving access, such as a HELOC.
- Approval requirements: Confirm qualification, valuation and collateral requirements with the lender.
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