Can you refinance a home equity loan in Canada?
Yes, Canadian homeowners can refinance an existing home equity loan (or HELOC) by replacing it with a new mortgage, restructuring with the current lender, or moving to a different lender for better terms. The right path depends on your equity, credit profile, income, and whether you hold the home equity product as a second mortgage or as part of a combined mortgage/HELOC with your current lender.
Below, you’ll find exactly how refinancing works, who qualifies, what it costs, and 7 proven strategies to help you save money and improve cash flow—without hurting your long-term plans.
What counts as a “home equity loan”?
In Canada, people often use “home equity loan” to mean one of two things:
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Fixed-term home equity loan (second mortgage): A lump sum with a fixed term/rate, registered behind your first mortgage.
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HELOC (Home Equity Line of Credit): A revolving credit line secured by your home; interest-only payments; usually registered as a collateral charge and often paired with your first mortgage.
Both can be refinanced either rolled into a single new mortgage or restructured to lower rates, extend amortization, and/or access additional funds (up to federally set loan-to-value limits).
Basic qualification checklist
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Home equity (LTV): Traditional refinances allow up to 80% of your home’s appraised value for the combined total of all mortgages/HELOCs.
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Income & debt ratios: Lenders evaluate gross debt service (GDS) and total debt service (TDS). Strong, stable income gives you more options.
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Credit score & history: Higher scores unlock the best “A-lender” rates. “B-lenders” and private options exist if your credit or income is non-traditional.
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Stress-test rules: Uninsured borrowers must qualify under the federal minimum qualifying rate (MQR) or contract rate plus a buffer—whichever is higher.
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Property & location: Appraised value, marketability, and property type all matter.
What does it cost to refinance?
Budget for the following (exact amounts vary by lender and province):
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Prepayment penalty: If breaking a fixed term, penalties can be the greater of 3 months’ interest or an interest rate differential (IRD). Variables usually face ~3 months’ interest.
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Legal/registration & discharge fees: To register a new mortgage and discharge the old one(s).
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Appraisal & title insurance: Common for switches or refinances.
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Broker/lender fees (if applicable): More common with alternative or private lenders.
A qualified broker will model the net benefit after all costs to ensure refinancing truly saves you money or solves a cash-flow need.
7 proven ways to refinance a home equity loan in Canada
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Roll your HELOC/second mortgage into one new first mortgage
If you have sufficient equity, consolidating everything into a single first mortgage can reduce your blended rate and simplify payments. Extending amortization (e.g., from 20 to 25–30 years where available) may lower monthly payments helpful during cash-flow crunches. -
Switch to an A-lender when eligible
If your current home equity loan sits with an alternative or private lender, plan a “step-up” strategy. Improve credit, document income, and reduce revolving balances; then refinance to an A-lender for materially lower rates once you qualify. A good broker will give you a 3–12 month action plan (paydown targets, score goals, document prep). -
Blend-and-extend with your existing lender
If you’re mid-term on a fixed mortgage paired with a HELOC, ask about a blend-and-extend option. You may avoid larger penalties by blending your existing rate with a new one and extending the term. It’s not always the cheapest path—compare it to a full refinance before committing. -
Convert interest-only HELOC use into a fixed-rate, amortizing mortgage
If rising rates have made your interest-only HELOC payments painful, consider converting a portion of that balance into a fixed-rate, amortizing segment. This adds principal repayment discipline and sets predictable payments, which can accelerate debt reduction and protect cash flow. -
Targeted debt consolidation for score rebuilding
Carrying credit cards/loans at double-digit rates? Refinancing your home equity loan to consolidate high-interest balances can lower your utilization and potentially improve your credit score over time. Better scores = better refinancing terms at your next step. -
Short-term alternative refinance with a clear exit
If you don’t quite fit A-lender guidelines (e.g., self-employed with recent income changes or bruised credit), a 12–24 month alternative refinance can be a bridge. Lock a plan to:
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Build a verifiable income history
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Lower revolving balances
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Establish on-time payments
Then exit to an A-lender for long-term savings.
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Leverage a new appraisal in rising-value markets
If your area’s values have improved, a fresh appraisal can increase your maximum allowable refinance amount (within the 80% cap), creating room to pay off costlier debts or to restructure your HELOC. The added equity may improve pricing tiers with some lenders.
Step-by-step: how the refinance process works
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Goal setting & numbers: Define whether you want lower payments, faster payoff, extra funds, or lender migration.
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Document check: Recent pay stubs/T4s or NOAs, business financials (if self-employed), mortgage statements, property tax bill, HELOC/second mortgage details, and ID.
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Pre-qualification & options: Your broker runs scenarios (keep, blend, switch, or full refinance), including penalty and fee comparisons.
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Appraisal ordered (as needed): Confirms current market value.
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Approval & legal: Once approved, you’ll review the disclosure package; a solicitor or closing service registers the new charge(s) and discharges the old ones.
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Funding & payouts: New lender funds; old lender(s) get paid out; any remaining net proceeds go to you.
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Post-close check-in: Confirm payments are set up. If you used a short-term plan, diarize the exit date to A-lender pricing.
Pros and cons of refinancing a home equity loan
Pros
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Potentially lower interest costs vs. keeping a high-rate second/HELOC balance
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Simplified payments by consolidating into one mortgage
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Ability to extend amortization to improve monthly cash flow
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A path to upgrade lenders as your profile improves
Cons
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Penalties and fees can offset savings if timed poorly
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Extending amortization can increase total interest over the life of the loan
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Qualification rules and stress-testing can limit maximum approval
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Collateral charge setups may complicate switching without legal steps
Smart timing tips
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Rate cycle: Consider where fixed rates (bond yields) and variable expectations are trending.
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Penalty window: Approaching maturity? You may reduce or avoid penalties by aligning the refinance with renewal timing.
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Credit staging: Give yourself 60–120 days to clean up utilization and payment histories before applying.
FAQs
Can I refinance if my home equity loan is a second mortgage?
Yes. If combined balances fit within 80% of appraised value, you can often roll the second into a new first mortgage or restructure with your existing lender for better terms.
Is refinancing a HELOC different from refinancing a fixed home equity loan?
Slightly. HELOCs are revolving and often interest-only; you may convert some or all of the balance to a fixed, amortizing portion or refinance into a new mortgage with a new lender.
Will I always save money by refinancing?
Not always. A proper analysis must weigh penalties, legal, appraisal, and title insurance against the interest and payment savings. Ask your broker for a written net-benefit comparison.
What if my credit isn’t perfect?
Alternative and private options exist as short-term bridges. With a clear exit plan (credit rebuild + income documentation), you can often graduate back to A-level rates.
Can I access more cash when I refinance?
Potentially—subject to the 80% LTV cap and qualification. A fresh appraisal may increase available equity if values have risen.
Final word
Refinancing a home equity loan in Canada is absolutely possible—and, with the right strategy, it can be a powerful way to cut interest costs, simplify payments, and unlock a path back to the best “A-lender” pricing. The key is to compare a blend-and-extend vs. a full refinance vs. a lender switch, model all costs, and time your move for maximum net benefit.
If you’d like, I can run a quick scenario with your current balance(s), rate(s), remaining term(s), property value, and credit score range to show your break-even point and projected savings.
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