Refinancing Versus Selling Your Investment Property
In today’s news, it’s common to hear stories about Canadian real estate investors who bought at the market peak a few years ago and now feel buyer’s remorse as property values are sinking in 2025.
Even investors who entered the market earlier than 2022 are struggling to shoulder higher carrying costs against a less-active rental market. Mortgage, credit card, and automobile delinquencies are also up, especially in Ontario.
On top of this, the average non-mortgage debt for Canadian consumers climbed up 2.74% in the first quarter of the year to reach $21,859. With many homeowners under financial stress, investors may be considering their options, namely to hold, to refinance, and (as a last option) to sell.
Costs of Refinancing vs. Selling
To help illustrate the costs of refinancing versus selling, let’s take one example of an investor who currently owns a two-bedroom condo in Downtown Toronto, which he is renting out. This property is currently worth $800,000, which is a bit devalued from the market peak 3 years ago. He has owned it for a while, so his mortgage loan is only about $400,000.
His carrying costs are high because he renewed his mortgage term when interest rates were around 5%, but he is nearing the end of his term and interest rates are much lower. His daughter is about to go to college, so he wants to help her cover her tuition and living expenses. Therefore, he is considering refinancing or selling his condo investment property to reduce his monthly financial burden and have extra funds to help his daughter.
Let’s look at the cost breakdown of both options.
| Refinancing | Selling | |
|---|---|---|
| Appraised Home Value | $800,000 | |
| Current Mortgage Loan | $400,000 | |
| Cost to Refinance or Sell (agent/broker fees, mortgage penalty, legal costs) | $2,000 | $50,000 |
| Capital Gains Tax | N/A | $92,000 |
| New Mortgage Loan | $600,000 | N/A |
| Money Extracted Minus Costs | $198,000 | $257,000 |
In the short term, selling can provide more value for this investor, as the difference between refinancing and selling is an estimated $59,000 in cash. However, this is just a quick estimate and a shallow glance at the immediate effects of selecting either option.
What happens when we look deeper and project into the future?
Why Selling Could Cost You More Than You Think
Once you sell, you give up the three pillars of real estate wealth: leverage, capital appreciation, and cash flow.
The moment you sell, it all stops—no more equity growth, no more rental income, no more long-term gain. It ends right then and there.
But when you refinance instead, you get the best of both worlds:
✅ Immediate access to cash to help you now
✅ Continued growth on your $100,000 investment
Over the last 25 years, home prices have appreciated at an average rate of 7.5%. Even at a conservative 4% annual growth, if your property is worth $800,000, that’s $32,000 a year in equity gain—without lifting a finger. And that’s on top of your tenant paying down your mortgage and generating monthly cash flow.
If you keep that property for another 15 to 25 years, the wealth potential multiplies.
We’re not talking about a one-time gain of $257K.
We’re talking about 10x that amount — while still holding the asset, benefiting from appreciation, and using someone else’s money (your tenant’s) to build your net worth.
Refinancing keeps your wealth working. Selling shuts it down.
What Are Your Long-Term Goals?
Both refinancing and selling can help this investor achieve his immediate objectives: reducing his carrying costs and sending his daughter to college. However, in the long run, they will deliver different results. Therefore, it is crucial for any investor to keep their long-term goals in mind.
Short-Term: Reduce Current Debt and Financial Strain
If you are currently under the weight of heavy debts (including multiple mortgages, credit card debt, or other loans) and your carrying costs are growing out of hand, you may consider selling your property to tackle both of these problems at once. The net proceeds of selling your real estate investment can help you pay off other debts while immediately removing that property’s carrying costs from your monthly ledger.
However, if your situation only needs a slight adjustment to be sustainable again and borrowing rates have dropped, refinancing your high-interest fixed-rate mortgage may be just what you need to carry on. By refinancing and getting a lower interest rate while extracting some optional extra cash, you may be able to lower your monthly costs and improve your cash flow to cover other expenses.
You should still weigh the refinancing option against the qualifications you may need to apply for a new mortgage and the penalty of breaking your current mortgage agreement. Not everyone’s situation may allow them to refinance, as lenders will look at your debt ratios, which may have worsened since you last applied for a mortgage. Additionally, if you are near the beginning of your mortgage term or have a closed agreement, breaking your current mortgage may be extremely costly.
Long-Term: Use The Equity to Spend or Invest More
Refinancing offers an attractive avenue for you to extract cash equity without incurring the many expenses of selling your property. The cost to refinance for some can be quite minimal, as some mortgage brokers offer cashback incentives to cover legal fees. The equity you withdraw is not subject to capital gains tax either, which would otherwise take a huge bite out of your profits (50% of your capital gains, to be exact).
Therefore, by leveraging the value of your property, you can cover other costs or debts or even pursue other investment opportunities. Meanwhile, you will still continue to build equity over time as you hold onto your initial real estate investment. Refinancing would allow you to wait until the market recovers and the property value bounces back or skyrockets, which is expected to happen in a few years.
Comparison Chart for Refinancing vs. Selling
With all this in mind, investors can make better-informed decisions when choosing between refinancing or selling their properties. Each individual case will be different, however, so it’s best to consult accounting and tax professionals who can help you get a clearer understanding of the effects of either choice on your personal finances.
I’m here to help investors like you make successful, long-term real estate decisions. Using our years of experience in the real estate market and taking a long-term strategy to help countless clients achieve their wealth-building goals, we are ready to guide you through the entire real estate investing process. Call Stan 604-202-1412.
