Is Refinancing Your Mortgage in Ontario a Good Idea?

TL;DR:

Refinancing can be a great idea, primarily for high-interest debt consolidation.

The math must work: long-term interest savings must outweigh high upfront costs (like prepayment penalties).

You must meet two key rules: 80% Loan-to-Value (LTV) (meaning you need 20% equity) and successfully pass the stress test.

It’s not free money, so plan carefully and consult a broker.

Refinancing your home is one of the biggest financial decisions a homeowner can make. If you own property in Ontario, you’ve likely asked the question: Is the time, effort, and expense of replacing my current mortgage with a new, larger one really worth it?

The simple answer is: Yes, refinancing can be a great idea, but only when it aligns with a specific, strategic financial goal. For many Ontario homeowners today, the goal isn’t just a lower rate—it’s about using the home equity to take control of high-cost debt or fund major projects.

We’re going to break down the mechanics of a mortgage refinance in Ontario, review the strict rules, and show you exactly when the numbers work in your favour.

Why Refinance? The Top 3 Strategic Reasons for Ontario Homeowners

A mortgage refinance is essentially getting a new mortgage to pay off your old one, usually for a larger amount. The difference in funds goes straight into your pocket or is used to directly pay off other debts.

There are three primary strategic reasons homeowners want to refinance:

1. Debt Consolidation

This is the most common reason to refinance in today’s high-interest environment. Instead of juggling high-rate credit card debt or personal loans, you can roll that debt into your much lower-rate mortgage.

Think of it: unsecured debts often carry interest rates between 15% and 30%. Moving that debt to a mortgage rate that is often below 5% can dramatically reduce your required monthly payments and save you thousands in interest.

A Real-Life Debt Consolidation Example

Let’s look at an Ontario homeowner struggling with unsecured debt.

Debt Component	Original Principal	Rate	Amortization	Monthly Payment
Old Mortgage	$300,000	2.50%	20 Years	$1,587.82
Unsecured Debt	$50,000	20.00%	Interest Only	$833.33
Total Combined Debt Payment				$2,421.15

At the end of a 5 year mortgage term, the outstanding balance is $238,346.72 with 15 years left in your mortgage.

Now, let’s look at the numbers after refinancing to consolidate the debt, plus $5,000 for closing costs, for a new mortgage principal of $293,346.72 at a new rate of 4.39%.

New Amortization	New Mortgage Payment	Monthly Cash Flow Change
15 Years	$2,221.72	Save $199.43 Monthly

The Result

You’re saving $200 a month and you’re still paying your mortgage off on time, even after an increase in your mortgage interest rate.

You can explore how these payments change using our free mortgage calculator.

2. Funding Major Life Projects

Refinancing allows you to tap into your home’s equity to pay for major life events, such as:

Home Renovations: As long as the renovations increase the value of your home, this can be worth it. It may make sense to refinance you home to pay for renos versus withdrawing from retirement savings or using your emergency fund.
New Suites: The government recently announced a new program allowing homeowners to potentially refinance up to 90% LTV (instead of the standard 80%) specifically to build secondary suites. Adding a rental unit increases your monthly income and pumps up your home value as well.

3. Lowering Monthly Payments (or Reducing Amortization)

If interest rates are dropping, refinancing into a lower rate can save you money. You could also refinance on your renewal date to increase your amortization (the length of the loan). That will reduce your regular mortgage payment.

The Cost of Refinancing: It’s Not Free Money!

Before you jump into a refinance, you must understand the costs. The savings must outweigh the fees.

The Prepayment Penalty (The Biggest Fee)

If you break your current mortgage contract before the term is up, your lender will charge you a prepayment penalty. This is usually the largest cost of refinancing.

For a fixed-rate mortgage, the penalty is typically the greater of:

Three months’ interest.
The Interest Rate Differential (IRD), which is the difference between your current rate and the rate the lender can offer today for the remaining time on your term.

For most variable rate mortgages, the prepayment penalty is three months interest.

Closing Fees and Costs

You will also incur closing costs similar to when you first purchased the home:

Appraisal Fee: The lender may require a full appraisal. ($450 to $700)
Legal/Solicitor Fees: Necessary for updating the title and completing the new registration. ($900 to $2,500)
Administrative Fees: Fees for title insurance, discharge of the old mortgage, etc. ($350 – $500)

Essential Mortgage Rules for Refinancing in Canada

The rules for refinancing are strict, and every Ontario homeowner must meet these two non-negotiable requirements:

The 80% Loan-to-Value (LTV) Rule

For a standard refinance, Canadian banking regulations limit the amount you can borrow to a maximum of 80% of your home’s appraised value.

If your home is valued at $500,000, the maximum total mortgage amount you can borrow (including your existing balance) is $400,000.

The Federal Stress Test

When you refinance, you are getting a new mortgage, which means you must re-qualify and pass the federal stress test.

You must prove to your lender that you can afford your mortgage payments at a higher “qualifying rate.” This rate is the higher of:

Your contract rate plus two percentage points (e.g., if your contract rate is 4.39%, you qualify at 6.39%).
The Bank of Canada’s Minimum Qualifying Rate (currently 5.25%).

If you’re paying off other debts, getting a lower interest rate, or increasing your amortization, it should mean your debt load is lighter, so qualifying in those circumstances can be easier.

When Should You NOT Refinance?

Refinancing your mortgage isn’t always the right choice. Avoid refinancing if:

Your Prepayment Penalty is too High: If the penalty is greater than the your savings over the next year or two, hold off until your renewal.
Your Credit Score is Poor: A low score will result in a much higher new mortgage rate, negating the benefit of consolidating debt. If you are self-employed or have complex income, this can be challenging—learn more about navigating this here: Self-Employed Mortgage Experts in North Bay.
You Plan to Sell Soon: If you are moving within the next year, refinancing will likely cost more in fees than you will save. And selling will break the new mortgage, incurring another prepayment penalty.

Next Steps: Making Your Refinancing Decision

Is refinancing a good idea for you?

It depends entirely on the math. Rely on a dedicated mortgage agent to do the math for you. We will:

Calculate the Savings: Determine if you will actually save money.
Calculate the Costs: You’ll have to ask your current lender for the exact prepayment penalty, but we can estimate legal fees, and appraisal costs.
Compare Multiple Scenarios: We’ll calculate different options available to you. You then choose which path you want to take.

Ready to see your exact numbers? Let’s connect and review your options today. You can easily book a free call here.

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