When should I refinance my mortgage?

Use your home equity to free up cash for your next major purchase or project

Let’s say you own a home and would like to do some renovations to increase its value and improve your family’s quality of life. That could mean updating an ageing kitchen, repairing some leaky plumbing or finishing a basement.

Now, let’s say that your money is tied up in investments you’d rather not touch, such as RESPs or RRSPs.

One option is to use the re-financing option in your mortgage – a process known as a “re-fi”.

Free up funds to pay for renovations, tuition, high-cost debt and more

Essentially, a re-fi involves using the equity that you have built up in your property to free up cash. This cash could be used for just about anything, like home renovations or another big expense, such as a car, college or university tuition or starting a new business. In some cases, people can use built-up equity through re-financing to pay off higher-cost debt, such as credit card debt.

The process of refinancing your home is relatively straightforward – in fact, the application is similar to that associated with getting a mortgage.

How much can you get?

Current regulations allow homeowners to borrow up to 80% of the appraised value of their homes. However, you must also consider how much of your mortgage has been paid off. Basically, the more money you’ve paid into your mortgage, the more cash you can access through a re-fi.

Let’s say your home is worth $450,000, and let’s assume that you’ve been paying down your mortgage for some time, so that you only have about $100,000 left.

In this scenario, 80% of the value of your home would be $360,000 and because you still have $100,000 left to pay, this means you can access about $260,000 in equity.1 Footnote 1

1    To learn more about the federal government’s rules for refinancing a home, see the article “Borrowing against home equity - Opens in a new window

,” Government of Canada, August 2017.

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