You've been paying your mortgage for a few years now, and you're wondering: should I refinance? It's a question thousands of Canadian homeowners ask themselves every year, and the answer isn't always straightforward. Refinancing can save you thousands of dollars or help you achieve important financial goals—but it's not the right move for everyone, and timing is everything.
I've helped countless clients navigate the refinancing decision, and I've seen firsthand how it can be a game-changer when done for the right reasons at the right time. Today, I'm going to walk you through the five telltale signs that it might be time to refinance your mortgage, along with some real-world scenarios to help you make the best decision for your situation.
Interest Rates Have Dropped Significantly
This is the most common reason people refinance, and it makes perfect sense. If you locked in your mortgage when rates were higher and they've since dropped, you could be leaving money on the table every month.
Here's a rule of thumb: if you can reduce your rate by at least 0.5% to 1%, refinancing is usually worth considering. Let's say you have a $400,000 mortgage at 5.5% with 20 years remaining. If you refinance to 4.5%, you could save approximately $250 per month—that's $3,000 per year, or $60,000 over the remaining term.
But here's the catch: you need to factor in the penalty for breaking your existing mortgage. If you're locked into a fixed-rate term, your lender will charge you the greater of three months' interest or the Interest Rate Differential (IRD). For a $400,000 mortgage at 5.5%, that three months' interest penalty would be around $5,500. Even with that cost, you'd break even in less than two years and save money from there on out.
Pro Tip:
If you're within six months of your renewal date, many lenders will let you refinance early with reduced or no penalties. It's worth asking!
You've Built Up Significant Home Equity
If your home has appreciated in value or you've been diligently paying down your mortgage, you might be sitting on a goldmine of equity. In many Canadian markets, home values have increased substantially over the past few years, and refinancing can unlock that equity for other purposes.
Let's say you bought your home five years ago for $500,000 with a $400,000 mortgage. Today, your home is worth $650,000, and you've paid your mortgage down to $350,000. That means you have $300,000 in equity—60% of your home's value. You could refinance up to 80% of your home's value (that's $520,000), which means you could access up to $170,000 in cash while still maintaining a mortgage balance.
What could you do with that equity? Common uses include:
- Home renovations: Kitchen remodels, bathroom upgrades, or adding square footage can increase your home's value even further
- Investment properties: Use the equity as a down payment on a rental property to build wealth
- Education costs: Fund your or your children's post-secondary education at a lower interest rate than student loans
- Emergency expenses: Major medical expenses or unexpected costs that need immediate funding
The beauty of borrowing against your home equity is that mortgage rates are typically much lower than credit cards, personal loans, or even HELOCs. Just remember: you're converting unsecured debt into secured debt against your home, so make sure you're using the funds wisely.
You're Drowning in High-Interest Debt
This is one of the most powerful reasons to refinance, and it's saved many of my clients from financial stress. If you're carrying credit card balances, personal loans, or car loans with interest rates in the double digits, consolidating that debt into your mortgage can be a lifesaver.
Let's look at a real scenario: Sarah and Michael have a $350,000 mortgage at 4.8%, plus $50,000 in various debts:
- Credit card 1 ($15,000) 19.99% interest
- Credit card 2 ($10,000) 21.99% interest
- Personal loan ($15,000) 12.5% interest
- Car loan ($10,000) 7.9% interest
They're paying over $1,200 per month just on these debts, with most of it going toward interest. By refinancing their mortgage to $400,000 and paying off all these debts, their monthly payment increases by only about $250—saving them nearly $1,000 per month in cash flow.
Even better, they're now paying 4.8% interest on that entire amount instead of double-digit rates. Over the long term, they'll save tens of thousands in interest charges.
Important Warning:
Debt consolidation only works if you address the root cause. If you refinance to pay off credit cards but continue overspending, you'll end up with both a larger mortgage AND new credit card debt. Make sure you're committed to changing your spending habits.
You Want to Switch from Variable to Fixed (or Vice Versa)
The variable vs. fixed debate is as old as mortgages themselves. If you chose a variable rate when you first bought but now you're losing sleep over potential rate increases, it might be time to lock in the certainty of a fixed rate.
I had a client, David, who got a variable rate mortgage at prime minus 0.5% back when prime was 2.45%. He was paying an effective rate of 1.95%—an absolute dream! But as the Bank of Canada raised rates throughout 2022 and 2023, his rate climbed to 5.95%. Suddenly, his monthly payment had jumped by over $600, and his household budget was stretched thin.
He refinanced into a 5-year fixed rate at 4.99%. Yes, it was higher than his original variable rate, but he gained peace of mind knowing exactly what his payment would be for the next five years. No more surprises, no more budget uncertainty.
On the flip side, some people want to switch from fixed to variable when they believe rates are about to drop. If you're currently locked into a high fixed rate and economic indicators suggest rates will decline, going variable could save you money. Just be prepared for the possibility that rates might not move the way you expect.
Market Insight:
As of January 2026, many economists are predicting rate stability or slight decreases over the next 12-18 months. However, nobody has a crystal ball—that's why it's important to choose the option that helps you sleep at night.
Your Financial Situation Has Changed Significantly
Life happens. Maybe you've gotten a promotion and want to pay off your mortgage faster. Maybe you've started a business and need better cash flow. Maybe you're approaching retirement and want to adjust your payment structure. All of these are valid reasons to refinance.
Scenario 1: Accelerating Your Payoff
Jennifer received a substantial inheritance and wants to put it toward
her mortgage. But instead of making a lump sum payment (which might be
limited by her prepayment privileges), she refinances with a shorter
amortization. She moves from a 25-year to a 15-year amortization,
increasing her monthly payment but saving over $75,000 in interest
over the life of the loan.
Scenario 2: Improving Cash Flow
Mark started his own consulting business, and his income is now
variable. He refinances to extend his amortization from 15 years
remaining to 25 years, lowering his monthly payment by $400. This
gives him breathing room during lean months, but he can still make
extra payments when business is good.
Scenario 3: Removing a Co-Borrower
After a divorce, Amanda needs to refinance to remove her ex-spouse
from the mortgage. While the rate might be similar, refinancing allows
her to take full ownership of the home and move forward independently.
The key here is that refinancing isn't just about rates—it's about making your mortgage work for your current life circumstances, not the circumstances you had when you first took it out.
But Wait... Should You Actually Pull the Trigger?
Just because you identify with one or more of these signs doesn't automatically mean you should refinance. Here are the key factors to evaluate:
Calculate Your Break-Even Point
Add up all the costs (penalties, legal fees, appraisal) and divide by your monthly savings. If you'll break even in 2-3 years or less, refinancing usually makes sense.
How Long Will You Stay?
If you're planning to sell within a year or two, the costs of refinancing might outweigh the benefits. But if you're staying put for 5+ years, the long-term savings could be substantial.
Check Your Penalty
Call your current lender and get the exact penalty amount in writing. Some penalties are minimal, while others (especially IRD penalties on fixed rates) can be shockingly high.
Review Your Credit
Your credit score affects your ability to qualify and the rate you'll receive. If your credit has improved since you got your original mortgage, you might qualify for better terms.
The Bottom Line
Refinancing your mortgage can be one of the smartest financial moves you make—or an expensive mistake if done at the wrong time for the wrong reasons. The key is to approach it strategically, run the numbers carefully, and make sure it aligns with your overall financial goals.
If you're seeing one or more of these five signs in your own situation, it's worth having a conversation with a mortgage professional. We can help you crunch the numbers, explore your options, and determine whether refinancing makes sense for you—not just in theory, but in your actual real-world circumstances.
Remember: your mortgage should work for you, not the other way around. If refinancing can improve your financial situation, provide peace of mind, or help you achieve your goals faster, it's worth exploring. And if the numbers don't make sense right now? That's okay too. We can keep an eye on rates and revisit the conversation when the timing is better.
Ryan Gurgis
Ryan is a licensed mortgage agent passionate about helping Canadian families navigate their home financing journey. With a fresh perspective and dedication to personalized service, he's committed to making the mortgage process clear and straightforward for first-time buyers and homeowners alike.