What are my mortgage options as a Canadian homeowner?
According to HomeCalc.ca: A Canadian homeowner has three things they can do with an existing mortgage, plus a review that comes first. They can restructure it (renew, blend, blend and extend, or break it and start over). They can take equity out (refinance, a HELOC, or a second mortgage), usually up to 80% of the home's value in total. Or they can use that equity to buy another property. Which one fits depends on how much of your term is left, what breaking it would cost, and whether your income still passes a lender's ratios. The Homeowner Journey above runs all three from one set of numbers, starting with a Financial Health Check.
Key Takeaways
- Renewing with your own lender, or switching lenders at renewal without borrowing more or stretching the amortization, does not require the mortgage stress test. Refinancing does: you qualify at the greater of 5.25% or your contract rate plus 2 percentage points.
- Breaking a mortgage mid-term usually costs three months' interest on a variable rate, and the greater of three months' interest or an interest rate differential (IRD) on a fixed rate. On $400,000 at 5.5%, three months' interest alone is $5,500.
- A blend avoids that penalty by averaging your old rate with today's. Using FCAC's published example, 5.5% with 24 months left and 4% for a new five-year term blends to about 4.6%.
- Total borrowing secured on your home is generally capped at 80% of its value, and a revolving HELOC at 65%. On a $800,000 home with $400,000 owing, that leaves about $240,000 of accessible equity, of which $120,000 can be a revolving line.
- Equity from your home can fund the down payment on another property, but the new purchase has to qualify on its own, with both properties' costs counted in your ratios.
What can you do with your mortgage once you own a home?
Most homeowner mortgage decisions fall into one of three paths. The Health Check comes first because each path depends on the same facts: your balance, your rate, how long is left on your term, your income and your other debts.
| Path | When it fits | Main cost to watch | Stress test? |
|---|---|---|---|
| Financial Health Check | Annual review, or before any of the paths below | None. It is a snapshot of ratios, equity, cash flow and coverage | No |
| Mortgage restructure | Your term is ending, or you want a lower payment or rate | Prepayment penalty if you break mid-term | Only if you borrow more or extend the amortization |
| Equity take out | Renovation, debt consolidation, investing or a large expense | Penalty (refinance) or a higher rate (second position) | Yes, for new borrowing |
| Buy another property | Cottage, second home or rental | Down payment, closing costs and carrying two properties | Yes, on the new mortgage |
Renew, blend, blend and extend, or break: which restructure option is cheapest?
If your term is ending, renewing or switching lenders is usually cheapest because there is no penalty. Mid-term, a blend avoids the penalty but keeps part of your old rate. Breaking the mortgage only pays off if the rate saving over the new term is larger than the penalty plus fees.
| Option | What happens | Penalty? | Rate you get |
|---|---|---|---|
| Renew | Same lender, new term at maturity (or early, inside the lender's renewal window) | No, at maturity | The lender's renewal offer |
| Blend | Same lender, new term now; remaining amortization unchanged | No, folded into the rate | A weighted average of old and new rates |
| Blend and extend | Same lender, new term now, amortization reset to a longer period | No, folded into the rate | Weighted average; lower payment from the longer amortization |
| Break and stay | Pay the penalty and take a new mortgage with the same lender | Yes | Today's rate |
| Break and move | Pay the penalty and switch to another lender | Yes, plus legal and discharge fees | The new lender's rate |
How a blended rate is calculated
The Financial Consumer Agency of Canada publishes a simplified method. Multiply your current rate by the months left in your term. Multiply the new rate by the rest of the new term. Add the two and divide by the length of the new term. In FCAC's example, a 5.5% mortgage with 24 months left, blended into a new 5-year term at 4%, comes out at about 4.6%. The journey runs this method on your own numbers and labels the result an estimate, because the lender's calculation is the one that counts.
What breaking the mortgage costs
On a variable-rate mortgage the penalty is usually three months' interest. On a fixed rate it is usually the greater of three months' interest or the interest rate differential. On a $400,000 balance at 5.5%, three months' interest is $5,500, and an IRD can be several times that when rates have fallen since you signed. To see both methods on your own mortgage, including the posted-rate method many big banks use, use the mortgage penalty calculator. To see what your payment becomes at maturity, use the mortgage renewal calculator.
Your renewal statement
A federally regulated lender must send your renewal statement at least 21 days before your term ends. Many lenders offer renewal earlier than that. If you are inside your lender's early renewal window, renewing with them usually carries no penalty.
How can you take equity out of your home in Canada?
There are three ways to take equity out: refinance your first mortgage, add a HELOC, or add a second mortgage behind the first. Lenders generally cap total borrowing secured on the home at 80% of its value, and the revolving part of a HELOC at 65%.
On a $800,000 home with $400,000 owing, 80% of the value is $640,000, so about $240,000 is accessible. The 65% line is $520,000, so up to $120,000 of that could sit in a revolving, interest-only HELOC. The remaining $120,000 would have to be an amortizing loan with principal and interest payments.
| Refinance | HELOC | Second mortgage | |
|---|---|---|---|
| What it is | Replace your mortgage with a larger one | A revolving line of credit secured on the home | A separate loan in second position |
| Breaks your current term? | Yes, so a penalty applies mid-term | No | No |
| Typical rate | First-mortgage rate | Prime plus a spread, variable | Higher than a first mortgage |
| Payment | Principal and interest on the whole new balance | Interest-only on what you draw | Principal and interest, or interest-only with some private lenders |
| Best for | Term ending soon, or a large one-time amount | Ongoing or uncertain costs, such as a renovation | Keeping a low first-mortgage rate you don't want to break |
The deciding factor is usually your current term. If it ends within months, refinancing at maturity avoids the penalty. If you have years left at a rate below today's, a HELOC or second mortgage leaves that rate alone. For HELOC payments and how much each lender tier allows, use the HELOC and second mortgage calculator.
Using equity to consolidate debt
If the money pays off a credit card or car loan, those payments stop counting against you once they are actually paid. The journey only removes a debt from your ratios when you tick it as paid off and the cash raised is enough to cover it. A debt you plan to clear later still counts.
Can you use home equity to buy a second property or a rental?
Yes. Equity from your home, taken out by refinance, HELOC or second mortgage, can be the down payment on another property. But you then qualify for two sets of costs: the borrowed equity adds a payment on your current home, and the new mortgage has to fit your ratios on top of it.
- Down payment. A rental or investment property generally needs at least 20% down. Lenders treat a second home you will occupy differently from a rental, so the minimum depends on the property type.
- Rental income. Lenders count only part of expected rent, either by adding a share of it to your income or by offsetting it against the property's costs. The method changes how much you qualify for.
- Closing costs. Land transfer tax and legal fees apply to the new purchase and come out of the cash you raised, so plan for less than the full amount going to the down payment.
- Tax. Interest on money borrowed to earn rental income is generally deductible, and what counts is how the money is used, not what secures it. Confirm your own case with an accountant.
In the journey, the Buy Another Property worksheet takes the equity amount you chose and checks the new purchase at standard ratios, then at the higher ratios some lenders allow with 20% down. If you only want to test whether you could carry a second property, the second home affordability calculator does that on its own.
Do you need to pass the stress test to renew, switch or refinance?
Not to renew or to make a straight switch. Yes to borrow more. Since late 2024, OSFI no longer requires federally regulated lenders to stress-test an uninsured mortgage that moves to a new lender at renewal, as long as the balance and amortization stay the same. Any new borrowing, including a refinance, a HELOC or a longer amortization, is qualified at the greater of 5.25% or your contract rate plus 2 percentage points.
| Situation | Stress test? |
|---|---|
| Renew with your current lender | No |
| Switch lenders at renewal, same balance and amortization | No (since OSFI's 2024 change) |
| Blend and extend, or any longer amortization | Treated as new borrowing; usually yes |
| Refinance or increase the balance | Yes |
| New HELOC or second mortgage | Yes |
| Mortgage on another property | Yes |
How the Homeowner Journey works
- Start with the Financial Health Check. Your home, income, debts, assets and other properties, once. It shows your ratios, equity and cash flow.
- Choose a worksheet. Mortgage Restructure, Equity Take Out Options or Buy Another Property. Your Health Check numbers carry over, so nothing is typed twice.
- Pick the property. If you own more than one, choose which mortgage the worksheet is about. The others still count in your ratios.
- Compare the options side by side. Each one shows its payment, penalty or cost, and your ratios after the change.
- Take the report to your broker. Email it to yourself, a spouse or your mortgage professional.
Your entries stay in this browser unless you email the report or save a link. The journey estimates; it is not an approval. A lender or mortgage broker confirms the rate, penalty and eligibility for your file.
Sources
- FCAC: Breaking your mortgage contract (blend method and example, prepayment penalties)
- FCAC: Renewing your mortgage (renewal statement timing)
- OSFI Guideline B-20 (80% loan-to-value limit, 65% HELOC limit, minimum qualifying rate)
- OSFI: straight switches exempt from the minimum qualifying rate
- FCAC: Borrowing against your home equity
- CRA Income Tax Folio S3-F6-C1: Interest deductibility