Refinancing Your Rental Portfolio: When It Makes Sense and How to Prepare

Learn when to refinance your rental properties, how to choose between rate-and-term vs cash-out refinancing, calculate breakage penalties, and prepare for appraisals to get the best results.

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Refinancing Your Rental Portfolio: When It Makes Sense and How to Prepare

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I talk to investors every week who are sitting on hundreds of thousands of dollars in equity across their rental portfolios. They know the equity is there. They can feel it. But they’re not sure when refinancing actually makes financial sense—or how to set themselves up to get the best possible outcome when they do pull the trigger.

Here’s the thing about refinancing: done right, it’s one of the most powerful moves you can make as an investor. Done wrong or at the wrong time, it costs you money and slows you down. So let’s break this apart and figure out when it makes sense for you and exactly how to prepare.

Two Types of Refinance: Rate-and-Term vs Cash-Out

Before we go any further, you need to understand the two main types of refinancing because they serve completely different purposes.

Rate-and-term refinance means you’re replacing your existing mortgage with a new one that has better terms. Maybe rates dropped since you locked in, or your term is coming up and you want to shop for something better. The mortgage balance stays roughly the same. Your goal is to lower your payment, shorten your amortization, or both.

Cash-out refinance means you’re taking a new, larger mortgage and pulling equity out as cash. Your property is worth more than you owe, and you want to access that difference. The cash goes in your pocket to fund renovations, buy another property, or pay down higher-interest debt.

Here’s a quick comparison:

Feature	Rate-and-Term	Cash-Out
Goal	Lower rate or better terms	Access equity as cash
New mortgage amount	Same or lower	Higher
Maximum LTV (most lenders)	80%	80% (rental), sometimes 65-75%
Typical use case	Rate drop or term renewal	Funding next purchase or reno
Impact on cash flow	Improves monthly cash flow	May reduce cash flow
Qualification	Easier	Stricter—lender wants to see you can handle higher payment

Most investors I work with are interested in cash-out refinancing because they want to recycle equity into new deals. That’s smart. But don’t sleep on rate-and-term refinancing either. If you locked in at 5.8% and current rates are at 4.5%, that payment difference across a portfolio of five or six properties is real money every single month. Check current investment property mortgage rates before making your move.

When Refinancing Makes Sense

Not every moment is the right moment to refinance. Here are the situations where it actually pencils out.

Your property has appreciated significantly. If you bought three years ago and the market has gone up 20-30%, you’re sitting on equity you can access. If you did renovations that forced appreciation, even better. The bigger the gap between what you owe and what the property is worth, the more you can pull out.

Rates have dropped meaningfully. I generally tell investors that a rate drop of 0.50% or more makes refinancing worth exploring, depending on your balance. On a $400,000 mortgage, dropping from 5.5% to 4.9% saves you roughly $150 per month. Across five properties, that’s $750 a month or $9,000 a year going back into your pocket or your next deal.

Your mortgage term is coming up for renewal. This is the easiest time to refinance because there’s no breakage penalty. You’re already going to renegotiate with someone—it might as well be through a broker who can shop every lender in the country for you.

You need capital for your next acquisition. If you have a deal lined up and need a down payment, pulling equity from an existing property is often cheaper than any other source of funds. The interest rate on your refinanced mortgage will almost always beat the cost of private lending or a line of credit. This is how many investors get money to buy multiple rental properties.

Your current mortgage product doesn’t serve you anymore. Maybe you started with a variable rate and want to lock in. Maybe you’re with a B lender and your situation has improved enough to qualify at an A lender. Switching products can save you thousands.

Refinancing at the wrong time or with the wrong lender can leave equity trapped — book a free strategy call with LendCity to make sure your refinance actually moves you forward.

When Refinancing Does NOT Make Sense

Just as important—here’s when you should hold off.

You’re deep into your current term with a big penalty. If you’re two years into a five-year fixed mortgage, the breakage penalty could be enormous. I’ve seen penalties of $15,000-$30,000 on a single property. Unless your refinance saves you more than that penalty over a reasonable timeframe, wait it out.

The numbers barely move the needle. Refinancing has costs—legal fees, appraisal fees, sometimes discharge fees. If you’re only saving $40 a month, it could take years to recoup those costs. Make sure the math actually works.

You can’t qualify for a better product. If your income situation has changed—maybe you left a salaried job to go self-employed—you might not qualify at an A lender right now. In that case, refinancing could actually put you in a worse position with a higher rate.

You’re about to sell. If you plan to sell the property within a year, refinancing is usually a waste of time and money.

Understanding Breakage Penalties

This is the part that trips up a lot of investors. If you’re breaking a mortgage before the term ends, you’re going to pay a penalty. How that penalty gets calculated depends on the type of mortgage you have.

Variable rate mortgages typically have a penalty of three months’ interest. On a $350,000 balance at 5%, that’s roughly $4,375. Painful, but manageable.

Fixed rate mortgages use the greater of three months’ interest OR the Interest Rate Differential (IRD). And the IRD is where it gets ugly. The IRD calculates how much the lender loses because you’re paying off early, based on the difference between your rate and the current rate for the remaining term. If rates have dropped significantly since you locked in, the IRD can be massive.

Here’s a simplified example. You have a $400,000 balance at 5.5% with three years left on your term. The lender’s current three-year rate is 4.0%. The IRD is calculated on that 1.5% difference over three years.

Rough IRD: $400,000 x 1.5% x 3 years = $18,000

That’s a real number. Compare that to three months’ interest at roughly $5,500. The lender charges whichever is higher—so you’re paying $18,000.

Before you refinance, call your lender and get the exact penalty in writing. Don’t guess. Don’t estimate. Get the real number and factor it into your analysis.

Pro tip: Some lenders calculate IRD more favorably than others. When you’re taking out your original mortgage, this matters. Ask your broker about penalty-friendly lenders, especially if you think you might refinance before term. Understanding how your debt ratios affect approval is also critical before starting.

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Pulling equity out of your property is one of the most powerful tools for scaling — schedule a free strategy session with us and we’ll help you time it right.

Preparing for the Appraisal

When you refinance, the lender orders an appraisal to confirm the property’s current market value. That appraised value determines how much equity you can access. So getting the highest defensible appraisal is critical.

Here’s how I tell my clients to prepare.

Clean the property. I know this sounds basic, but a clean, well-maintained property appraises higher than a messy one. If you have tenants, give them notice and ask them to tidy up. Cut the grass. Clean the windows. First impressions matter.

Make a list of every improvement you’ve made. Did you replace the roof? Update the kitchen? Add a bathroom? Finish the basement? Write it all down with dates and approximate costs. Give this list to the appraiser when they arrive. They might not adjust for everything, but they need to know about it.

Provide your own comparable sales. Research recent sales of similar properties in the area. Find the best comps—properties similar to yours that sold for the highest prices. Print them out and hand them to the appraiser. You’re not telling them what to value your property at, but you’re making sure they see the strongest evidence.

Fix obvious issues. A dripping faucet, a cracked window, peeling paint—these things signal deferred maintenance and can hurt your appraisal. Spend a weekend and a few hundred dollars fixing the small stuff before the appraiser shows up.

If you’ve added a legal secondary suite, make sure it’s documented. A legal basement apartment or secondary suite can dramatically increase your property’s appraised value because it generates income. Have permits and certificates ready to show. Learn how to refinance your home to add a rental unit for maximum equity extraction.

The Documentation Checklist

When you apply to refinance, your lender or broker will need documentation. Having everything ready speeds up the process and prevents delays. Make sure you understand what your mortgage broker really needs from you. Here’s what you’ll typically need:

Personal documents:

Government-issued photo ID
Most recent two years of T1 General tax returns (all pages)
Most recent Notice of Assessment from CRA
Recent pay stubs or proof of income (if employed)
T4s or T4As for the last two years
If self-employed: two years of financial statements, T2125 forms, and Articles of Incorporation

Property documents:

Current mortgage statement showing balance, rate, and maturity date
Property tax bill (most recent)
Current lease agreements for all units
Proof of rental income (bank statements showing deposits)
Insurance certificate or policy
Condo status certificate (if applicable)

Financial documents:

Statement of assets and liabilities (your broker will help with this)
Bank statements showing down payment or reserve funds
Statements for any other mortgages or debts
Line of credit statements

Get all of this organized before you start the application. I can’t tell you how many deals get delayed because an investor can’t find their Notice of Assessment or doesn’t have a current lease on file. Be the investor who shows up prepared.

Timing Your Refinance With Rate Cycles

Timing matters, and I’m not talking about trying to predict exactly when rates will hit bottom. Nobody can do that consistently. But you can be smart about it.

Watch the Bank of Canada announcements. The BoC sets the overnight rate eight times per year. Fixed rates are influenced more by bond yields, but variable rates move directly with the overnight rate. If the BoC has been cutting and signals more cuts ahead, variable rates will continue dropping.

Understand the bond market. Five-year fixed rates are tied to the five-year Government of Canada bond yield. When bond yields drop, fixed rates follow—usually with a slight delay. You can track bond yields yourself. When you see a sustained downtrend, that’s a good window for locking in a fixed rate refinance.

Don’t wait for the perfect bottom. Here’s my honest advice: if the numbers work today, do it today. I’ve watched investors wait months for rates to drop another 0.25% and end up paying more because rates went the other direction. If refinancing saves you money or frees up capital for a deal that makes sense, pull the trigger.

Renewal timing is your best friend. If your term is maturing within the next 120 days, most lenders will let you lock in a rate early with no penalty. That’s a free option. Take it.

Building a Refinance Strategy for Your Whole Portfolio

If you own multiple properties, think about refinancing as a portfolio-wide strategy, not a one-property decision. This is especially important when you’re looking to buy unlimited rental properties in Canada.

Stagger your mortgage terms so they don’t all renew at the same time. If all five of your properties renew in the same year and rates happen to be high, you’re stuck. But if they renew across different years, you always have opportunities to take advantage of favorable conditions.

Consider which properties have the most equity and the best cash flow. Refinance those first. The cash flow needs to support the higher payment after a cash-out refinance, so start with your strongest performers.

Keep reserves. After you pull cash out, don’t deploy every dollar into your next deal. Keep a buffer for vacancies, repairs, and rate changes. The worst position to be in is fully invested with zero liquidity.

The Math That Matters

Before you refinance, run these numbers:

Break-even analysis. Total cost of refinancing (penalty + legal + appraisal + any other fees) divided by monthly savings = number of months to break even. If you plan to hold the property longer than that, refinancing makes sense.
Cash-out return analysis. If you’re pulling $100,000 out and it costs you an extra $400/month on the refinanced property, that cash needs to earn more than $4,800/year to justify the move. If you’re putting it into a property that generates $12,000/year in cash flow, that’s a clear win.
Debt service ratios. Make sure your GDS and TDS ratios still work after the refinance. Your broker will calculate these, but you should understand them. If your ratios are tight, a cash-out refinance could disqualify you from future purchases.

Refinancing your rental portfolio isn’t about chasing the lowest rate or pulling out every dollar of equity. It’s about making strategic moves at the right time to grow faster while keeping your finances solid.

If you’re sitting on equity and wondering whether now is the right time, explore refinancing options with someone who does this every day. We’ll look at your portfolio, run the numbers, and tell you exactly what makes sense for your situation—even if the answer is “wait.”

Frequently Asked Questions

How much equity do I need to refinance a rental property in Canada?

Most lenders require you to keep at least 20% equity in a rental property after the refinance. That means you can refinance up to 80% loan-to-value (LTV). Some lenders are more conservative on rentals and cap it at 75% or even 65%, especially for cash-out refinances. Your broker can match you with the lender that offers the best LTV for your situation.

Can I refinance a rental property that's held in a corporation?

Yes, but your options are more limited. Most A lenders won't finance properties held in a corporation, so you'll typically be looking at B lenders, credit unions, or commercial lenders. The rates will be slightly higher, but it's absolutely doable. If you're considering incorporating your properties, talk to your broker and accountant first to understand how it affects your financing options.

How long does the refinance process take?

With a standard A lender, expect 30 to 45 days from application to funding. B lenders can sometimes move faster, and private lenders can close in as little as a week. The biggest delays come from missing documentation or slow appraisals. Having your paperwork ready before you start can shave a week or more off the timeline.

Do I pay tax on the cash I pull out from a refinance?

No. Cash from a refinance is not income—it's borrowed money. You don't pay income tax on it. However, the interest you pay on the refinanced amount may or may not be tax-deductible depending on how you use the funds. If you use the cash to purchase another income-producing property, the interest is generally deductible. Talk to your accountant about your specific situation.

What's the difference between refinancing and getting a HELOC on my rental?

A refinance replaces your existing mortgage with a new one. A HELOC (Home Equity Line of Credit) is a revolving credit line secured against your property, sitting behind your existing mortgage. HELOCs offer flexibility because you only pay interest on what you draw, but they come with higher interest rates and many lenders won't offer HELOCs on rental properties. A refinance typically gives you a lower rate and a fixed repayment schedule.

Can I refinance multiple properties at the same time?

Yes, and it can actually work in your favor. When a lender sees your full portfolio and the total rental income it generates, they may be more willing to approve your refinance applications. Just be aware that each property requires its own appraisal and application, so the paperwork multiplies. A broker experienced with investor portfolios can manage this process efficiently.

Will refinancing affect my ability to get new mortgages in the future?

It can. A cash-out refinance increases your total debt, which affects your debt service ratios. If your ratios get too tight, you may not qualify for additional mortgages through traditional lenders. This is why it's important to plan your refinancing strategy with future acquisitions in mind. Your broker should be running these numbers before you refinance to make sure you're not locking yourself out of your next deal.

Is it worth refinancing if rates have only dropped by 0.25%?

It depends on your mortgage balance and whether there's a penalty to break your current mortgage. On a $500,000 balance, 0.25% saves you about $1,250 per year. If refinancing costs you $3,000 in fees with no penalty (like at renewal), you break even in under three years. But if there's a $15,000 breakage penalty, it would take over 14 years to recoup—not worth it. Always run the break-even math.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

January 30, 2026

Reading Time

12 min read