Many Canadians today are hesitant to take out mortgages or refinance their existing loans. The share of consumers with a mortgage has steadily declined since 2021, down from 30.65% to 27.89% as of Q4 2025. This is largely due to expensive real estate, rising cost of living, and general economic uncertainty. The silver lining is that if you find yourself in a position to refinance your mortgage, this decline may make for better terms for you. There are some things you need to keep in mind before signing on the dotted line. It can save you a lot of money and stress down the road.
When you own real estate, specifically your home, you have equity in your home. Home equity is essentially the amount of money you’ve already paid towards your mortgage loan. Or, the difference between your home’s value and the remaining amount of money left to pay off your mortgage. There are a few ways to realize equity in your home, and one of them is to refinance your mortgage. However, refinancing your mortgage isn’t a decision you should take lightly.
How does refinancing your mortgage work?
Refinancing your mortgage entails breaking your existing mortgage loan and obtaining a new one. Then, you use the money from the new mortgage loan to pay off your old mortgage. Upon refinancing, you might be subject to more favourable interest rates and different loan terms from either the same or a different lender.
Steps to refinance a mortgage
Shop around
Explore options from different lenders to get an idea of what’s available to you. Look into mortgage refinancing options from local and larger banks, credit unions, and alternative lenders and compare their offerings. Compare interest rates, term lengths, closing costs and other fees to get an all-encompassing picture.
Don’t fall for online offers
Some online lenders might entice you with low rates that seem too good to be true. Usually because they are. Remember, online offers aren’t promised agreements; they are just advertisements. Don’t interpret anything as truth until you have it in writing.
Submit a mortgage application to a couple of lenders within a week or two.
Each time you apply for a mortgage, lenders will check your credit. If they do a “hard credit check”, it affects your credit score. By submitting applications in the same time frame, you minimize the hit on your credit score.
Pick the mortgage with the most favourable terms for your personal situation.
Compare interest rates, fees, and term lengths. Consider using a mortgage calculator. Learn what you need to consider when choosing a mortgage. A mortgage is one of those times when you really should read the fine print. Make an informed decision based on your needs and circumstances.
Lock your interest rate and close on your new mortgage!
Make sure you pay attention to the closing fees and confirm that they are the same as what you agreed to when you signed. Here too, it is important to read all the fine print. At this point, you would ideally have checked out all the considerations mentioned above. Confirm the points you’ve discussed. Sign only if you’re comfortable. You’re not obliged to go ahead and sign up, even if you’ve had multiple meetings. It’s your money and your decision.
Reasons to refinance your mortgage
There are many reasons why you might consider refinancing your home:
Access Home Equity
Accessing or realizing equity in your home is possible through refinancing your mortgage. Another way to access home equity is by choosing a mortgage that offers a home equity loan or home equity line of credit (HELOC). This might be a less costly choice, since you don’t need to pay excess fees to use this loan, apart from a modest interest rate. However, if you don’t have access to a HELOC, you can access equity through refinancing your mortgage.
Realizing equity can help you pay for expensive obligations and wishes, such as:
- Renovating your home
- Investing in more property
- Paying expensive medical bills
- Covering post-secondary school tuition
- Funding a startup or business
- Pay off a higher-interest personal loan
Keep in mind, however, that to realize home equity, the refinancing option you’d be selecting is a “cash-out refinance.” This can cost you a higher interest rate on your new mortgage loan.
Secure a Lower Interest Rate
Obtaining a lower mortgage rate can help you save money in the long run, but make sure you calculate the numbers. Refinancing comes with fees, so you need to ensure it’s worth it for your personal situation.
Switch to a Variable-Rate or Fixed-Rate Mortgage
Variable-rate mortgages have interest rates that vary with the market throughout the course of the loan, though the initial interest rate is fixed for an agreed-upon period of time. The rate fluctuates after this initial period, based on the lender’s prime rate.
Fixed-rate mortgages have interest rates that stay the same throughout the mortgage term. For example, you can lock in a mortgage rate of say 2.5% for 5 years. This makes for predictable monthly payments.
With variable rates, a mortgage holder faces the possibility of a high rate at unexpected times. However, interest rates rise and fall with the market. If you convert from a fixed rate to a variable rate when interest rates are generally low, you could save money on your mortgage interest. However, if interest rates are rising, it’s more prudent to stick with a fixed-rate mortgage.
Consolidate Debt
Debt consolidation is a popular goal for people refinancing their mortgage. Household debt rose to nearly 170% in Canada in 2019, meaning Canada has the highest household debt amongst the G7 countries. It has only continued to rise, currently at 177.2% of disposable income as of Q4 2025. A 2023 report from CMHC said that 75% of Canadian household debt comes from mortgages. Mortgage refinancing might seem like a good idea for some and offer relief.
Before considering refinancing your mortgage to pay off debt, be aware of the kinds of debt that you have. If you have bad spending habits and tend to rack up credit card debt, mortgage refinancing won’t break those habits. If anything, refinancing might encourage you to continue making poor financial decisions and risk losing even more equity in your home.
However, if your debt is explained by anything other than poor spending, refinancing your mortgage might be a valid option. Still, you should only use refinancing as a solution to debt if you’re confident that you will certainly spend the extra money to pay your debts.
Lower Monthly Mortgage Payments
If you’re hoping to decrease your monthly mortgage payments, refinance your mortgage. It can help if you secure a longer mortgage loan term. By adding more time to the length of the loan, you space out your payments more. However, this decreases the money you spend each month on your principal mortgage payments.
Conclusion
Refinancing your mortgage is a great way to realize equity, consolidate debt, secure lower interest rates, and lower monthly payments. However, with all big financial decisions, it’s important to consider the risks and returns. You will face fees for breaking your mortgage early, and more fees for refinancing. Mortgage refinancing comes with high costs, so make sure you spend enough time calculating the numbers before making a decision.
If you’re considering refinancing your mortgage because you’re struggling with debt and looking for some relief, consider contacting a credit counsellor today. They’ll discuss your situation with you and offer up other debt solution alternatives. With those in mind, you’ll be able to make a fully informed decision.
