Refinance + Take Out Equity
for GTA renovations.
A cash-out refinance replaces your existing mortgage with a larger one — you take the difference in cash and use it for the renovation. It's the right call for big projects (additions, full-home renos, multi-room overhauls) where the math of one consolidated low-rate payment beats juggling a mortgage plus a HELOC.
- Typical rate
- Posted mortgage rate + 0.25-0.50%
- Setup time
- 30-45 days
- Min. credit score
- 650+
- Best for
- Full home renos or additions ($75K+)
How it works
You apply with your existing lender (or shop a new one) for a new mortgage that's larger than your current balance. At closing, the new lender pays off the old mortgage and the leftover cash — minus closing costs — comes to you. That cash funds the renovation.
The new mortgage carries the rate available at the time of refinance, which is usually the posted rate plus a small spread. Amortization restarts from whatever you choose (typically 25 or 30 years), so the monthly payment can stay similar to what you were paying before even with more principal owed.
Why it makes sense for large renos
The killer feature is the rate. If you can borrow $150K through a mortgage refinance at 5.5%, vs. $150K through a HELOC at 8.20% (Prime + 1.0%), you're saving roughly $4,000 a year in interest. On a 25-year amortization, that's $100K in lifetime interest savings — far more than the $3,000-$5,000 closing cost penalty.
This is why we recommend refinance for additions, full-home gut renos, and basement suite legalizations. The dollar amounts are large enough that the rate spread matters more than the friction of restarting the mortgage.
What it costs to set up
Expect $3,000-$5,000 in closing costs all-in: appraisal ($400-$600), legal fees ($1,200-$2,000), discharge fee on the old mortgage ($300-$500), title insurance ($350), and a few hundred in incidentals. If you're breaking your existing mortgage early, add the prepayment penalty — typically 3 months interest on variable-rate mortgages, or the higher of 3 months interest or IRD (interest rate differential) on fixed-rate.
Where it falls short
The breaking penalty can wipe out the savings if you're 2 years into a 5-year fixed term. The smart play is to time the refi to your existing renewal date — most homeowners save more by waiting 6-12 months than rushing into a refi with a $15K penalty.
The other constraint is qualification. Lenders stress-test you at the higher of 5.25% or your contract rate + 2%. With current rates at 5.5%, that means qualifying as if you were paying ~7.5%. Your debt service ratios need to support it.
When to use it instead of a HELOC
Use refinance when: - The project is $75K+ (the rate spread matters at scale) - You're already at or near mortgage renewal (penalty is small or zero) - You want a single locked payment, not floating-rate exposure - You don't need revolving access — the money is being spent once
Use a HELOC instead when: - You're 2+ years away from renewal and the penalty would be punishing - You like the flexibility of paying interest-only during construction - The project is under $75K (closing costs eat the savings)
We see refis used most often for additions and major general contracting where the project value exceeds $100K.
Worked example
What it actually costs.
Full second-floor addition on a Mississauga semi at mortgage renewal time.
- Amount borrowed
- $180,000 borrowed
- Rate
- 5.49% fixed, 5-year term, 25-year amortization
- Term
- 5-year locked + 20-year remaining amortization
- Monthly payment
- $1,098 incremental payment (vs. previous mortgage)
- Total interest cost
- Roughly $48,000 in interest over the 5-year term on the new $180K
How to qualify.
- Existing equity of 20%+ in the property
- Credit score 650+ for prime lenders
- Total debt service ratio under 44% at the stress-test rate (5.25% or contract + 2%)
- Verifiable income — minimum 2 years employment history or 2 years T1 General for self-employed
- Loan-to-value ratio after refinance can't exceed 80%
Why it works
- Lowest borrowing cost on large amounts ($75K+)
- Single consolidated payment — no second loan to manage
- Fixed rate option locks your cost for 1-5 years
- Up to 80% loan-to-value financing
- Interest may be tax-deductible if used for an income property (talk to your accountant)
Where it falls short
- $3,000-$5,000 in closing costs
- Prepayment penalty if breaking existing mortgage mid-term
- Resets amortization — you'll be in mortgage longer
- 30-45 day timeline doesn't work for rush projects
- Stress-test qualification is stricter than HELOC
See your project's price range — before you call.
Three questions, real numbers from 200+ Toronto-area projects. We'll email the range and a brief on what drives it up or down.
Step 1 of 3
What kind of project?
Frequently asked
About mortgage refinance financing.
- How much equity do I need to refinance for a renovation?
- You need to retain 20% equity after the refinance. Example: $1M home, $500K current mortgage. New mortgage maxes at $800K (80% of value), so you could pull out $300K of equity.
- What's the breaking penalty if I refi mid-term?
- Variable-rate mortgages: typically 3 months interest, so $1,500-$2,500 on a $300K balance. Fixed-rate: the higher of 3 months interest OR the IRD (interest rate differential). IRD can be $10,000-$25,000 on a $500K mortgage with 3 years left at a high-spread rate.
- Can I refinance and pull cash out at the same time?
- Yes — that's exactly what a cash-out refi is. The new mortgage = old balance + cash to you - closing costs. You choose the new amortization and rate term.
- Will I qualify if my income dropped recently?
- Lenders look at 2-year averages for variable income (commission, bonus, self-employed). If your most recent year is down significantly from prior years, expect more scrutiny or to qualify for a smaller amount. B-lenders (Home Trust, Equitable Bank) are more flexible but charge higher rates.
Pairs well with
Projects this financing fits.
Compare options