Mortgage refinance in Ontario
The break-even calculation almost nobody runs before they sign, or before they don’t.
Direct answer
Refinancing in Ontario means replacing your existing mortgage with a new one, up to a maximum of 80% of your home’s appraised value. People refinance to access equity, consolidate debt, fund a renovation or investment, or change lenders for better terms.
Breaking a mortgage early triggers a prepayment penalty: three months’ interest on a variable, or the greater of three months’ interest and the interest rate differential on a fixed. Refinancing pays when (penalty + closing costs) ÷ monthly saving is shorter than the time left in your term.
On this page
Reasons to refinance that actually hold up
- Consolidating high-interest debt. The largest and most common win. Full breakdown here.
- Restructuring for retirement. Amortization and payment reset before your income drops, not after.
- Funding a down payment on a rental, and setting the structure up so the interest is traceable and potentially deductible.
- Escaping a bad product. A collateral charge you can’t switch out of, a lender with no prepayment privileges, or a rate that’s well off market.
- Renovation that adds value, funded at 4% instead of on a store card at 29%.
Reasons that usually don’t hold up: chasing a 0.1% rate difference mid-term, or refinancing to “free up cash” with no plan for where it goes.
The limits
| Structure | Maximum LTV |
|---|---|
| Conventional refinance (mortgage only) | 80% |
| Home equity line of credit, standalone | 65% |
| Readvanceable mortgage + HELOC combined | 80% total, HELOC portion capped at 65% |
| Refinance of an insured mortgage | Not permitted for equity take-out |
| Alternative (B) lender refinance | Typically 80%, occasionally 85% in strong urban markets |
Prepayment penalties, decoded
This is where people get hurt, and it’s entirely avoidable: the number is knowable before you commit to anything.
Variable rate: three months’ interest. Simple, usually a few thousand dollars, rarely a dealbreaker.
Fixed rate: the greater of three months’ interest or the interest rate differential. The IRD is meant to compensate the lender for the interest they lose. In practice, the formula varies enormously. Some lenders compare your rate against a current rate for the remaining term. Others compare your discounted rate against a posted rate: a comparison that inflates the penalty, sometimes into five figures.
Call your lender. Ask for “the exact payout penalty as of today, in writing.” Then ask what it would be in three months, and at renewal. Those three numbers change the decision.
The break-even calculation
One formula, and it settles most arguments:
Break-even
(Prepayment penalty + closing costs) ÷ (monthly interest saving) = months to break even.
If that number is smaller than the months remaining in your term, refinancing pays. If it’s larger, wait for renewal, or negotiate hard at renewal instead.
Worked example: $450,000 balance, 30 months left at 5.79%, available at 4.29%. Interest saving is roughly $560 a month. Penalty comes back at $9,400, closing costs $1,800. $11,200 ÷ $560 = 20 months. With 30 months left in the term, you’re ahead by about $5,600, and every month after renewal is pure gain.
Use the calculators to run yours →
Alternatives worth considering first
- Prepayment privileges. Most mortgages allow 15–20% lump sum annually plus a payment increase. Free, and often enough.
- A second mortgage or HELOC behind the existing one, leaving your low-rate first mortgage untouched. Higher rate on the smaller piece, but no penalty on the big piece. Frequently the right answer when someone has a 2% mortgage from 2021.
- Blend-and-extend with your current lender. Convenient, rarely optimal, and always worth comparing.
- Wait for renewal and shop it properly. Renewal playbook.
Written and reviewed by Derrick Johnston, Mortgage Agent Level 2, BRX Mortgage Inc. (FSRA #13463). Illustrative figures; verify all rates and penalties with your lender.
Straight answers
Frequently asked questions
How much equity can I take out of my home in Ontario?
Up to 80% of the appraised value, less your existing mortgage balance. Home equity lines of credit are capped at 65% LTV on their own, though a combined mortgage-plus-HELOC readvanceable product can reach 80% in total.
How is a mortgage prepayment penalty calculated?
On a variable-rate mortgage it is almost always three months’ interest. On a fixed-rate mortgage it is the greater of three months’ interest or the interest rate differential (IRD). The IRD formula varies dramatically between lenders. Some use posted rates, which inflates the penalty substantially. Always request the exact figure in writing.
What is blend-and-extend and should I use it?
Blend-and-extend keeps you with your current lender: they blend your existing rate with a current rate over a new, longer term, avoiding an outright penalty. It is convenient and sometimes the right answer, but because you cannot shop it, the blended rate is rarely the best available. Compare it against breaking and refinancing elsewhere, penalty included.
Can I refinance to buy an investment property?
Yes, accessing equity for a down payment on a rental is a common and legitimate use. If the borrowed funds are used to earn income, the interest on that portion may be tax deductible. Structure matters enormously here; a separate sub-account keeps the tracing clean. Review with your accountant, and see the cash damming page.
Is refinancing worth it just to get a lower rate?
Run the break-even. Divide the total cost of switching (penalty plus closing costs) by the monthly interest saving. If the answer is fewer months than remain in your term, it pays. If it is longer, wait for renewal.
Next step
A 30-minute call tells you whether there's money on the table.
No application, no credit pull, no pitch. Bring your current mortgage balance, your renewal date, and a rough list of what you owe elsewhere. You'll leave the call knowing your options and what each one costs.