If you own a home in Ontario and have built equity, one strategic way to access cash is through a cash out refinance. This involves breaking your existing mortgage and replacing it with a new mortgage for a larger amount. The extra proceeds—beyond your remaining mortgage—are paid out to you. It’s also known in Canada as an equity take‑out refinance.

In this guide, we'll explore:

What a cash out refinance is—and how it works

How lenders assess eligibility, loan‑to‑value limits, and affordability

The pros and cons of refinancing your mortgage for cash

How alternatives like home equity loans or a HELOC may help you access equity without changing your current mortgage

How to decide which route—refinance mortgage, HELOC, or second mortgage—makes sense for your needs

How Cash Out Refinancing Works

When you choose a cash out refinance, your lender pays off your old mortgage balance with a new refinance mortgage. You receive the difference in cash.

Example process:

Original mortgage owes $300,000

Home is appraised at $700,000

New refinance mortgage up to 80% LTV = $560,000

Pay off existing mortgage, and receive roughly $260,000 in cash

You end up with a single, larger mortgage and a lump sum payout. Your interest rate, amortization, and monthly payment are reset with the new mortgage.

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How Much Equity Can You Cash Out?

In Canada, lenders usually allow up to 80% loan‑to‑value (LTV) for cash out refinancing. That means:

If your home is worth $750,000 and your outstanding mortgage balance is $350,000

You may refinance up to $600,000 (80% of value)

This gives you around $250,000 in available cash after paying off your original loan

But the lender will also evaluate your credit profile, gross debt service ratios, income stability, and the property’s characteristics. Building a strong application is key.

Why Cash Out Refinance Can Be Attractive

Homeowners often choose a cash out refinance for:

Debt consolidation: Turning high‑interest credit cards or loans into one lower‑rate mortgage

Home improvement or renovation funding

Large purchases or investments: Buying a vehicle, funding school tuition, or investing in a second property or business

Locking in a new lower mortgage rate, especially if your current rate is higher or due for renewal

Tax planning opportunities, if the funds are used for investment purposes (always consult an accountant)

Because mortgage rates are generally below those for unsecured credit, a cash out refinance can save money and simplify finances.

Risks and Considerations of Cash Out Refinancing

While useful, cash out refinancing comes with trade‑offs:

Mortgage prepayment penalty: Breaking your current mortgage early may trigger significant fees, especially with non‑variable or locked‑in fixed terms

Resetting your amortization: Borrowers often refinance to a new 25‑ or 30‑year amortization, potentially extending long‑term interest costs

Losing an excellent existing rate: If your current mortgage rate is very low—say, 1.5%—you may be forced onto a much higher refinance rate

Higher monthly payment obligation: Unless you extend amortization, your monthly repayment will increase due to the larger principal

Additional legal, appraisal, and administrative fees associated with refinancing

These factors mean that cash out refinance isn’t always the right path—especially if you’re attached to your existing mortgage terms.

Refinancing Alternatives: Home Equity Loan or HELOC

If your goal is to extract home equity without replacing your current mortgage, there are two powerful alternatives to cash out refinance:

Home Equity Loan (Second Mortgage)

A home equity loan, or second mortgage, allows you to borrow a lump sum while keeping your first mortgage intact.

You receive the money all at once

You make fixed monthly payments over a defined term (often 1–5 years)

Rates are higher than first mortgages but typically much lower than unsecured debt

Fits well for known, one‑time expenses like renovations or debt consolidation

Ideal when:

Your existing mortgage has a low rate or low prepayment penalty you want to preserve.

HELOC (Home Equity Line of Credit)

A HELOC is a revolving line of credit secured against your home’s equity.

Access funds as needed—you only borrow what you use

Flexible repayment—interest‑only minimum payments are common

Variable interest rates, usually tied to prime

No need to exit your current mortgage

Best suited when:

You want flexible access to equity for ongoing or unpredictable expenses, and want to maintain your current mortgage.

When You Might Want to Keep Your Mortgage

Many Ontario homeowners hold ultra‑low fixed mortgage rates secured between 2020 and 2022. These low rates are still valid but may incur steep penalties if broken early.

Instead of refinancing the entire mortgage:

You avoid paying a penalty by keeping your current loan

You preserve a very low rate that might not be available today

You only pay a higher rate on the portion you borrow—via a home equity loan or HELOC

This combo can lead to substantial savings compared to a full cash out refinance.

How to Qualify for a Cash Out Refinance in Ontario

If you're considering a cash out refinance, lenders will evaluate several factors before approving you. Even if you have enough equity, you still need to meet certain affordability and credit requirements.

Here’s what lenders typically look for:

1. Sufficient Equity in Your Home

You can refinance up to 80% of your home’s appraised value. The difference between that and your remaining mortgage balance is your available cash out.

Example:

Home value: $800,000

80% of value: $640,000

Existing mortgage: $420,000

Maximum equity take-out: $220,000

An appraisal will usually be required to confirm market value.

2. Strong Credit Score

Most prime lenders prefer a minimum credit score of 650 for refinances. The higher your score, the more flexibility and better rates you’ll get.

If your score is below that, don’t panic—alternative and private lenders may still approve you, but likely at a higher interest rate or with added conditions.

3. Stable Income and Low Debt Ratios

Lenders will review your gross debt service (GDS) and total debt service (TDS) ratios:

GDS: Monthly housing costs (mortgage, property taxes, heat) should be under 39% of your gross monthly income

TDS: Total debt payments (housing + loans, credit cards, car payments) should be under 44% of your gross income

You’ll need to provide income verification such as pay stubs, job letters, or tax returns (for self-employed borrowers).

4. Low Prepayment Penalty or Mortgage at Renewal

If your mortgage is not up for renewal, you’ll likely face a prepayment penalty for breaking your contract. This penalty can be:

3 months’ interest for variable-rate mortgages

The interest rate differential (IRD) for fixed-rate mortgages—which can be thousands of dollars

Many borrowers wait until their renewal window (120 days before maturity) to avoid this cost.

How to Qualify for a Home Equity Loan or HELOC

Home Equity Loan (Second Mortgage)

Qualification for a home equity loan—also called a second mortgage—is typically more flexible, especially with non-bank lenders.

You’ll still need:

At least 20% equity in your home (the more, the better)

No credit requirements (can be more flexible than with traditional banks)

No income requirements (can be more flexible than with traditional banks)

This is a great option for borrowers with bruised credit or unconventional income (self-employed, commission-based, etc.).

HELOC (Home Equity Line of Credit)

HELOCs have more stringent requirements, since they’re considered revolving credit:

Credit score of 550+ is usually required for B lenders (no credit requirement for private lenders)

Must qualify based on standard debt service ratios

Maximum combined loan-to-value (CLTV) usually capped at 65–80%

If you don’t qualify through a bank, some monoline lenders and credit unions may offer standalone HELOCs or hybrid mortgage-HELOC products with more flexibility.

Decision Framework: Which Option Is Right for You?

Here’s a simplified way to think about your options based on goals, timing, and current mortgage terms:

✅ Choose a Cash Out Refinance if:

Your current mortgage is near renewal (or open)

You want to consolidate high-interest debt into one lower-rate payment

You’re okay with restarting your amortization and/or locking into new terms

You qualify for a competitive rate and want to simplify your finances

Your existing mortgage rate is higher than what’s available today

✅ Choose a Home Equity Loan (Second Mortgage) if:

You need a lump sum now

You want to preserve your current low mortgage rate

You have less-than-perfect credit or self-employment income

You’re okay with slightly higher interest, in exchange for flexibility

You want to avoid breaking your existing mortgage and paying a penalty

✅ Choose a HELOC if:

You want flexible access to funds over time (not all at once)

You’re planning renovations, tuition payments, or business cash flow

You prefer interest-only payments and the ability to re-borrow

You want to keep your first mortgage intact

Using a Mortgage Broker to Compare All Options

Trying to compare fixed, variable, refinance, second mortgage, and HELOC offers on your own can be overwhelming—especially when each lender uses different qualification rules, penalty structures, and pricing tiers.

That’s where a licensed mortgage broker adds value:

Unbiased advice: Brokers work for you, not the bank

Access to multiple lenders: Banks, monoline lenders, trust companies, credit unions, and private lenders

Faster comparisons: Brokers can help you evaluate your borrowing power across all three options (refinance, HELOC, second mortgage)

Penalty planning: Brokers can calculate your prepayment charges and help you decide whether refinancing now makes financial sense

Credit flexibility: If you don’t qualify at your bank, brokers know which lenders will work with your profile

In short, brokers are like personal mortgage matchmakers—especially useful if your situation isn’t textbook.

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