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An equity take-out refinance replaces an existing mortgage with a new, larger one secured against the same property, letting the borrower access some of the equity built up as a lump sum of cash. The new mortgage pays off the old one, and the difference — up to the lender’s maximum loan-to-value ratio — is advanced to the borrower.
The amount available depends on the property’s current appraised value, the remaining balance owed, and the lender’s maximum loan-to-value for a refinance. Because the new mortgage is being increased beyond what is needed to simply pay out the old one, an equity take-out refinance on an uninsured mortgage is generally treated as a new, uninsured transaction and stress-tested accordingly.
This is one of the most common ways Canadian homeowners fund renovations, investment property down payments, or a debt-consolidation refinance. It differs from a HELOC, which adds a separate revolving credit line rather than replacing the existing mortgage outright.
Insured mortgages cannot be refinanced for cash-out: federal rules do not allow default-insured mortgages to be refinanced to take out equity; an equity take-out generally makes the new mortgage uninsured.
Stress-tested like a purchase: the increased loan amount is qualified at the minimum qualifying rate under OSFI Guideline B-20, the same stress test used for a purchase.
Lender LTV limits apply: uninsured refinances are typically capped at a lender’s maximum loan-to-value ratio, which is set by each lender within regulatory limits.
Closing costs apply again: an equity take-out refinance typically involves new legal, appraisal, and discharge/registration costs, similar to an initial purchase closing.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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