Should You Refinance Your Mortgage? Ontario 2026
Breaking your mortgage before maturity can save thousands — or cost thousands. Here's how to know which applies to you, and what to do about it.
4 Reasons Canadians Refinance Their Mortgage
Refinancing is not just about chasing a lower rate — it's a financial tool with several powerful applications.
Get a Lower Interest Rate
If rates have dropped since you got your mortgage, refinancing can reduce your monthly payment and total interest paid. Even a 0.50% reduction on a $500,000 mortgage saves roughly $14,000 over 5 years.
Access Your Home Equity
Canadian homeowners can refinance up to 80% of their home's appraised value. Accessing equity is commonly used for home renovations, investment properties, debt consolidation, or major expenses.
Consolidate High-Interest Debt
Credit cards and personal loans often carry 18–25% interest. Rolling that debt into your mortgage at 4–5% can dramatically reduce your monthly obligations and free up cash flow.
Change Your Mortgage Terms
Switch from variable to fixed (or vice versa), extend your amortization to lower payments, or switch from a collateral charge to a standard mortgage for easier lender switching at renewal.
Understanding Prepayment Penalties
The penalty for breaking your mortgage early is the biggest cost factor in a refinance decision. It varies significantly by mortgage type.
Fixed Rate Mortgage
Higher of: 3 months' interest OR Interest Rate Differential (IRD)
IRD is charged when rates have fallen since your mortgage was issued
On a $400K balance with 3 years left at 5.5% vs today's 4.0% rate: IRD ≈ $18,000
Variable Rate Mortgage
3 months' interest only
Simple calculation: (balance × rate / 12) × 3
On a $400K balance at 4.45%: penalty ≈ $4,450
Important: Big 6 banks often calculate IRD using posted rates (not discounted rates), which inflates the penalty significantly compared to monoline lenders. Always get the penalty in writing before deciding.
The Break-Even Calculation
Before breaking your mortgage, calculate how long it takes to recover the cost of refinancing.
Total Refinance Cost
Penalty + legal fees (~$1,200) + appraisal (~$400) = total cost
Monthly Savings
Current payment minus new payment at the lower rate
Break-Even Months
Total cost ÷ monthly savings = months to recover. Under 24 months is generally worthwhile.
How to Refinance in 5 Steps
We handle most of this for you — but here's what the process looks like.
Calculate Your Break-Even
Divide your total penalty cost by your monthly savings. If you'll stay in the home longer than the break-even period, refinancing likely makes sense. Use our Refinance Calculator to model your exact numbers.
Get Your Penalty Quote
Call your current lender and ask for a "payout statement." This shows exactly what you owe and the prepayment penalty. Canadian lenders are required to disclose this.
Shop New Rates
Work with SenTrust Mortgages to compare rates from 50+ lenders. We'll factor in all costs — penalty, legal fees (~$1,000–$1,500), appraisal (~$400) — to calculate your true net savings.
Apply & Get Approved
We handle the paperwork. You'll need a current property appraisal, proof of income, and your most recent mortgage statement. Approval typically takes 3–5 business days.
Close Your New Mortgage
Your lawyer discharges the old mortgage and registers the new one on the same day. Any equity you've accessed is deposited to your account at closing.
Frequently Asked Questions
How much does it cost to break a mortgage in Canada?
Penalties vary significantly by lender and mortgage type. Variable rate mortgages typically charge 3 months' interest (e.g., ~$4,450 on a $400,000 balance at 4.45%). Fixed rate mortgages charge the higher of 3 months' interest OR the Interest Rate Differential (IRD), which can reach $15,000–$30,000+ if rates have dropped significantly. Always get a written payout statement from your lender before deciding.
What is the Interest Rate Differential (IRD) penalty?
The IRD is a penalty charged on fixed rate mortgages when you break the term early and current rates are lower than your contract rate. It represents the interest income your lender loses by relending the money at a lower rate. Banks calculate IRD differently than monoline lenders — bank IRD penalties are often significantly higher because they compare your rate to a discounted posted rate.
When does refinancing make financial sense?
Refinancing makes sense when your monthly savings exceed the total cost (penalty + legal fees + appraisal) within your expected stay in the home. A break-even period under 24 months is typically considered worthwhile. It also makes sense if you need to access equity, consolidate high-interest debt, or need to change your mortgage structure.
Can I refinance without breaking my mortgage?
Yes — through a blended mortgage. Your lender combines your existing balance (at your current rate) with a new top-up (at the current rate), creating a blended rate between the two. This avoids the prepayment penalty entirely. However, blended rates are usually less favourable than the best market rates available through a broker.
How much equity can I access when refinancing?
Canadian regulations allow you to refinance up to 80% of your home's appraised value. So if your home is worth $700,000 and you have a $400,000 mortgage balance, you could access up to $160,000 (80% × $700K = $560K maximum mortgage, minus $400K balance).
Does refinancing hurt my credit score?
A new mortgage application triggers a hard credit inquiry, which may reduce your score by a few points temporarily. However, if refinancing reduces your total debt load (through debt consolidation) or lowers your payment-to-income ratio, the long-term credit impact is typically positive.
Related Resources
Is Refinancing Right for You?
We'll run the numbers — penalty, savings, break-even — at no charge and tell you honestly whether refinancing makes sense for your situation.
Licensed by FSRA. Lic# M24000260. No obligation, ever.