The single structural difference between Canadian and American mortgages explains almost everything else: in Canada, the term and the amortisation are different things.

You might amortise over 25 years but hold a five-year term. At the end of that term the remaining balance rolls into a new one at whatever rates prevail. Renewal isn’t an option you take. It’s built into the product.

That makes refinancing in Canada a different exercise. The American question is “should I refinance?” The Canadian question is usually “what am I doing at renewal?”

Renewal versus refinancing

Renewal happens when your term ends. No penalty. You can sign your lender’s offer, negotiate it, or move to another lender. This is the free, scheduled moment to improve your rate.

Refinancing means changing the loan mid-term: accessing equity, consolidating debt, or chasing a better rate before your term is up. This triggers a prepayment penalty.

Most people who think they want to refinance actually want to shop properly at renewal, and the difference between those two is a penalty worth thousands.

The penalty that catches people

This is where Canadian borrowers most often lose money.

Variable-rate mortgage. The penalty is commonly around three months of interest. Predictable and usually modest.

Fixed-rate mortgage. The penalty is typically the greater of three months of interest or an interest rate differential — a calculation based on the gap between your rate and the lender’s current rate for a comparable remaining term.

The IRD is the one that surprises. It varies substantially by lender because each uses its own comparison rate, and it can be several times the three-month figure. Two borrowers in apparently identical positions at different banks can face very different penalties.

Get the exact penalty in writing from your lender before doing anything. Not an estimate from a calculator. The number they will actually charge, dated.

The renewal letter is not an offer to accept

Your lender will send a renewal offer some weeks before the term ends. It is a starting position.

Three things to do with it:

Don’t sign it immediately. Signing is the easiest option and frequently the most expensive.

Get competing quotes. A broker can survey the market quickly, and having a real alternative is what makes negotiation work.

Take the competing quote back to your lender. Retention pricing exists, and it usually requires evidence that you’re prepared to move.

The cost of this exercise is a few hours. The saving is measured across the whole next term.

Where rates sit

The Bank of Canada held its target for the overnight rate at 2.25% on 15 July 2026, with the next scheduled announcement on 2 September 2026.

That’s notably lower than peers: the US Fed at 3.50–3.75%, the Bank of England at 3.75%, the RBA at 4.35% in August 2026. Canadian borrowers are in a materially different environment, which is worth remembering when reading American mortgage commentary. The US 30-year fixed averaged 6.67% in mid-August 2026, and it isn’t a comparable product anyway.

Variable-rate mortgages here track lender prime, which moves with the Bank’s policy rate. Fixed rates follow bond yields instead, which is why a fixed rate can move while the policy rate doesn’t.

When mid-term refinancing is still right

Despite the penalty, three cases where it can make sense:

Consolidating expensive debt. Replacing a balance at credit-card rates with mortgage-rate debt is a large saving — and it converts unsecured debt into debt secured against your home. The consolidation trade-offs apply, with higher stakes.

Accessing equity for a specific, necessary purpose.

Escaping a rate you can’t sustain, where the penalty is smaller than the ongoing cost.

In each case, run it the same way: penalty plus fees, divided by the monthly saving, compared against your remaining term. If the break-even lands beyond your renewal date, wait for renewal instead.

Two things worth diarising

Your renewal date, six months out. That’s when to start shopping, not the week the letter arrives.

Your prepayment privileges. Most Canadian mortgages allow some annual lump-sum prepayment penalty-free. Using them is a free way to reduce the balance without any refinancing decision at all.

Most of what gets called “refinancing” in Canadian conversation is really just renewal done properly. Get that distinction right and the broader refinancing logic only needs to apply to the smaller set of cases where mid-term really is worth the penalty; the mortgage guide covers the rest of the terrain around it.