Mortgage Refinance Calculator

Use the mortgage refinance calculator to see whether it makes sense and calculate the max amount of additional equity you can get.

Mortgage Refinance Calculator

Whether you want to lower your mortgage payments, borrow more money or add a home equity line of credit (HELOC), it usually takes a refinance to do it.

Refinancing isn’t always a clear-cut decision, however. That’s why we created the mortgage refinance calculator you see here.

It removes the guesswork from figuring out whether it’s worth breaking your existing mortgage to get a new one. It factors in interest savings, fees and penalties and boils it all down to a simple recommendation.

Try it yourself, and refer to the tips and instructions that follow…

What does “mortgage refinance” mean?

Refinancing your mortgage entails paying off your current mortgage, removing it off the title of your home (with the help of a lawyer), and taking out a brand new mortgage.

There are multiple reasons why borrowers refinance:

  1. To access additional funds: Refinancing your mortgage is one way to access the equity you’ve built up in your home. This lets you cash out funds to finance a home renovation, pay for post-secondary tuition, consolidate debt, assist a family member with their down payment, fund a business venture, buy investments or pay for an emergency, to name a few.
  2. To reduce monthly payments: By refinancing, you can extend your repayment term, or “amortization.” That reduces your monthly payments, other things equal. The downside is that it then takes longer to pay off your loan. You therefore could end up paying more interest, unless you make extra payments later.
  3. To get a lower interest rate: Many people refinance when their current mortgage rate is significantly higher than current market rates. This was the case following the COVID-19 pandemic in 2020. That episode drove fixed and variable rates to record lows. Those who had gotten a mortgage as recently as six months prior had rates that were a full percentage point (or more) higher. For many, that made it financially worthwhile to refinance into a lower mortgage rate, despite large prepayment penalties in some cases.
  4. To add a Home Equity Line of Credit (HELOC): Some borrowers refinance to add a HELOC. A HELOC is a line of credit secured by the property. It gives you an easy-to-access, low-cost source of funds for future needs. Fully readvanceable mortgages—which include both a HELOC and mortgage—are an especially popular form of HELOC. That’s because the limit on the credit line grows automatically as the mortgage is paid down. The funds can then be re-borrowed immediately as needed.

How to use the mortgage refinance calculator

This intuitive and powerful tool lets you easily calculate the potential costs and/or savings of refinancing your mortgage.

This calculator is more comprehensive than most because it takes into consideration both the cost (penalty and fees) associated with breaking your current mortgage, as well as your estimated savings from the new rate (both on a monthly basis and over the entire term).

Based on your inputs, this calculator provides a recommendation as to whether it’s worth refinancing. It also explains the reasoning behind that recommendation, as well as interest-saving tips.

The calculator also lets you enter:

  • any non-mortgage debt you plan to consolidate into the mortgage
  • the average interest rate of that non-mortgage debt
  • any cash rebates offered if switching to a new lender
  • your primary reason for refinancing (interest savings, monthly payment reduction or taking out equity)

Calculate step by step

Here’s how to use this calculator in a nutshell:

  1. Enter your current mortgage information: This includes the current home value (feel free to estimate it), current mortgage amount, existing interest rate, months remaining on your mortgage, remaining amortization and prepayment penalty.
  2. Add the amount and rate for any debts you want to roll into your new mortgage: This could include credit card balances and other forms of higher interest debt
  3. Input the details for your new mortgage: Here you can enter your desired rate (or find the lowest rate), enter your amortization (if you have 20% or more equity you can increase the amortization up to 30 years to lower your payment) and enter any cash rebates your broker or lender are providing.
  4. Review the recommendation: When choosing the priority for your refinance, think carefully and choose the objective that matters to you most. The four priorities include interest savings, payment reduction, equity take-out and adding a HELOC.

Depending on your selection, our calculator will adjust its recommendations accordingly to best inform your decision.

Refinance tips

Beware of mortgage penalties

Most mortgages in Canada are closed mortgages, meaning you can’t break the mortgage contract to refinance without a penalty. And those penalties can be sizable. In fact, penalties can negate much or all of your savings, and that may impact your decision or ability to refinance.

Before starting the refinance process, you’ll first want to estimate the cost to break your current mortgage. This is easy to determine for most variable or adjustable rates, since the penalty is typically just three months’ interest.

Fixed rates, on the other hand, often entail a steeper penalty since they’re calculated using the greater of three months’ interest or the interest rate differential (IRD).

The IRD is calculated by taking the difference between your rate and the rate your lender could lend at today, for a timeframe equivalent to your remaining term. The more your rate is above today’s rates, the higher the IRD charge.

There are many “fair penalty lenders” out there. They charge lower prepayment penalties for fixed rates, but Canada’s Big Six banks are not among them.

Make sure your credit is top-notch

If you’ve been late with your debt payments, especially if you have a credit score under 600, it helps to spend time improving your credit before applying for a refinance.

The good news is that, with some effort, your credit score can be repaired in as little as 12 months or less. The easiest way to boost your score is to pay your bills on time and pay down existing non-mortgage debts to less than 70% of their credit limits. For best results pay them down to below 30% of the credit limit. This improves your “credit utilization,” a critical factor in determining your credit score.

It also doesn’t hurt to use a free credit reporting website—offered by the likes of Borrowell, Mopolo, Credit Karma or Mogo—so you can review your credit report and correct any errors that may be negatively influencing your score.

Make sure you can prove your income

Mainstream lenders always carefully verify your employment, but they’ve been even more careful about income validation since the advent of COVID-19.

If your job isn’t deemed essential, for example, prepare to have your application face higher scrutiny. The same goes for self-employed borrowers in hard-hit businesses.

Rising home prices can be your friend

Home prices have risen significantly in many regions of the country. That can work to your advantage on a mortgage refinance. That’s because it reduces your loan-to-value (LTV). A lower LTV opens up more lending options and reduces your risk in the eyes of a lender.

Refinance into a shorter term

If you’re a risk-tolerant borrower, choosing a shorter term can save you interest and give you more flexibility (i.e., not bind you to your lender for as long, thus reducing your penalty exposure on early prepayments). A shorter term can also be a great alternative to a variable mortgage, especially when variable-rate discounts aren’t so hot.

Refinance into an adjustable-rate mortgage (ARM)

In a flat to falling rate environment, opting for a floating-rate mortgage can magnify your interest savings on a refinance. Just keep in mind that when the Bank of Canada is at its effective lower bound of 0.25% (as it was during summer 2020), variable rates can likely only go sideways or up.

Don’t rely on a calculator alone

Mortgages are nuanced products. The data returned by this calculator is for general interest only. Before acting on any online mortgage information, talk to a professional licensed mortgage advisor to confirm your financing plan.

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