You bought your Calgary home in 2019 for $450,000 with a $90,000 down payment (20%). Today, that home is worth $580,000. You have paid down your mortgage to $310,000. You now have $270,000 in equity — but it is trapped in your house.
Meanwhile, you want to buy a rental property. The down payment (20%) on a $480,000 investment property is $96,000. You do not have $96,000 in cash, but you have $270,000 in home equity.
This is where the refinance-to-purchase strategy comes in. You refinance your primary residence to pull equity out, use that equity as the down payment on a rental property, and start building a real estate portfolio. This is how most Calgary real estate investors scale beyond their first property.
This guide explains exactly how refinance-to-purchase works, what it costs, when to use it, and how to execute it strategically.
What Is the Refinance-to-Purchase Strategy?
Refinance-to-purchase (also called refinance-to-invest) is the process of refinancing your primary residence to access equity, then using that equity as a down payment on an investment property.
The Process
Step 1: Refinance your primary residence to 80% of current value Step 2: Receive the equity difference in cash Step 3: Use that cash as down payment on rental property Step 4: Repeat the process as properties appreciate and equity grows
Example
Your primary residence:
- Current value: $600,000
- Current mortgage: $320,000
- Maximum refinance (80% LTV): $600,000 × 80% = $480,000
- Equity available: $480,000 - $320,000 = $160,000
You use the $160,000 to:
- Purchase two rental properties at $400,000 each
- Down payment on each: $80,000 (20%)
- Closing costs: $5,000 per property
Result: You now own your primary residence plus two rental properties, all financed without touching your savings.
The 80% Loan-to-Value (LTV) Rule
In Canada, you can refinance up to 80% of your home's appraised value. The remaining 20% must stay as equity.
Why 80%?
This is a regulatory limit designed to protect homeowners from over-leveraging. If you refinance beyond 80%, you would need mortgage default insurance (CMHC, Sagen, Canada Guaranty), which is not available for refinances — only purchases.
Calculating Your Available Equity
Formula: Available Equity = (Home Value × 80%) - Current Mortgage Balance
Example 1:
- Home value: $550,000
- Mortgage balance: $280,000
- Available equity: ($550,000 × 80%) - $280,000 = $440,000 - $280,000 = $160,000
Example 2:
- Home value: $480,000
- Mortgage balance: $390,000
- Available equity: ($480,000 × 80%) - $390,000 = $384,000 - $390,000 = $0 (already over 80%, cannot pull equity)
You need at least 20% equity in your home before you can access any funds through refinancing.
When to Use Refinance-to-Purchase
You Have Significant Equity But Limited Cash Savings
You own a home with $150,000+ in equity but only $30,000 in liquid savings. Without refinancing, you cannot afford the 20% down payment ($80,000 to $100,000) on an investment property.
Refinancing unlocks your trapped equity and gives you access to capital for investment without liquidating retirement accounts or taking personal loans.
You Want to Scale Your Portfolio Quickly
If you wait to save $100,000 in cash for each investment property, it takes years to build a portfolio. Refinancing accelerates the process by using your existing equity.
Example timeline:
- Without refinancing: Save $100k over 3 years, buy property 1. Save another $100k over 3 years, buy property 2. Total: 6 years for 2 properties.
- With refinancing: Refinance in Year 1, buy 2 properties immediately. Properties appreciate, refinance again in Year 5, buy 2 more. Total: 4 properties in 5 years.
Your Primary Residence Has Appreciated Significantly
Calgary home prices increased 12% in 2024 and are projected to grow another 5% to 8% in 2025. If you bought 3 to 5 years ago, you likely have substantial equity gains.
Example:
- Purchased 2020: $420,000
- 2025 value: $550,000
- Equity gain from appreciation: $130,000
- Original down payment: $84,000
- Total equity: $214,000 (minus remaining mortgage balance)
This equity is an asset sitting idle. Refinancing puts it to work.
You Have Strong Income to Support Multiple Mortgages
Refinancing increases your debt load. You need sufficient income to qualify for:
- Your new, higher mortgage on your primary residence
- The mortgage on your investment property
Income requirement example:
- Primary residence new mortgage: $480,000 at 5.0% = $2,793/month
- Investment property mortgage: $320,000 at 5.2% = $1,976/month
- Rental income (50% rule): $2,200 × 50% = $1,100/month counted
- You need to qualify for $3,669/month ($2,793 + $1,976 - $1,100)
If your income supports this, refinance-to-purchase works. If not, you will be declined.
The Costs of Refinancing
Refinancing is not free. Here are the costs:
Mortgage Penalty (If Breaking Before Maturity)
If you refinance before your mortgage term ends, you pay a penalty.
Variable rate mortgage: Three-month interest (typically $3,000 to $6,000) Fixed rate mortgage: Interest Rate Differential (IRD), often $8,000 to $20,000+
Example:
- Mortgage balance: $310,000
- Rate: 5.2%
- 26 months remaining
- IRD penalty: $9,200
This penalty is often added to your new mortgage balance, so you do not pay it in cash.
Legal Fees: $1,000 to $1,500
Your lawyer handles the discharge of your old mortgage and registration of your new mortgage.
Appraisal: $300 to $500
The lender requires a current appraisal to confirm your home's value.
Lender Discharge Fee: $250 to $500
Some lenders charge a fee when you pay out your mortgage early.
Total Refinancing Costs: $1,600 to $22,000+
- At maturity (no penalty): $1,600 to $2,500
- Breaking early (fixed rate): $10,000 to $22,000+
These costs must be factored into your investment ROI.
The Math: Does It Make Financial Sense?
Refinancing increases your mortgage balance and your monthly payment. You need to ensure the investment property cash flow and appreciation justify the increased debt.
Example Scenario
Your primary residence:
- Current value: $580,000
- Current mortgage: $300,000 at 4.8%, payment $1,961/month
- Refinance to: $464,000 (80% LTV)
- New rate: 5.2%, new payment: $3,032/month
- Payment increase: $1,071/month
- Equity accessed: $164,000
Refinancing costs:
- Penalty: $8,500
- Legal and appraisal: $1,500
- Total cost: $10,000
Investment property purchase:
- Purchase price: $450,000
- Down payment: $90,000
- Closing costs: $10,000
- Total capital required: $100,000
Remaining cash after purchase: $164,000 - $100,000 = $64,000 (reserves)
Investment property cash flow:
- Mortgage: $360,000 at 5.2% = $2,222/month
- Property taxes: $240/month
- Insurance: $130/month
- Maintenance reserve: $150/month
- Total costs: $2,742/month
Rental income: $2,500/month
Monthly cash flow: $2,500 - $2,742 = -$242/month (negative cash flow)
Cost-Benefit Analysis
Annual costs:
- Increased payment on primary residence: $1,071/month × 12 = $12,852/year
- Negative cash flow on investment property: $242/month × 12 = $2,904/year
- Total annual cost: $15,756
Annual benefits:
- Principal paydown on investment property: ~$6,800/year
- Appreciation (5% on $450,000): $22,500/year
- Tax deductions (mortgage interest on investment property): ~$3,500/year tax savings
- Total annual benefit: $32,800
Net annual benefit: $17,044 (benefits exceed costs)
Plus: You built a $450,000 asset with $100,000 down (leverage amplifies returns)
This is why investors use refinance-to-purchase even with negative cash flow.
The Refinance Loop: Scaling to Multiple Properties
The most powerful aspect of refinance-to-purchase is that it is repeatable.
The Loop
Year 1: Own primary residence worth $450,000, mortgage $280,000 Year 3: Home appreciates to $520,000, refinance to $416,000 (80%), access $136,000, buy Property 1 Year 5: Primary residence now $570,000, Property 1 now $480,000. Refinance both, access $180,000 combined, buy Property 2 and Property 3 Year 8: Portfolio appreciates, refinance again, buy Property 4
This is how investors build portfolios of 5, 10, 15+ properties — using equity from existing properties to fund new purchases.
The Risk: Over-Leveraging
The refinance loop only works if:
- Properties continue to appreciate (Calgary's strong market supports this)
- Rental income covers most or all of the carrying costs
- You maintain strong personal income to qualify for increasing debt
- You keep cash reserves for vacancies and repairs
If any of these break down — property values drop, rental market softens, you lose your job — you can be overleveraged and at risk of foreclosure.
Conservative approach: Maintain 6 to 12 months of expenses in cash reserves, keep total debt service ratios below 42%, and do not refinance to the maximum 80% LTV every time.
Refinance-to-Purchase vs HELOC for Investment
An alternative to full refinancing is using a HELOC (Home Equity Line of Credit) to access equity.
HELOC Advantages
- No mortgage penalty (your existing mortgage stays untouched)
- Flexibility (draw what you need, when you need it)
- Interest-only payments (lower monthly cost)
HELOC Disadvantages
- Higher interest rate (6.5% to 7.0% vs 5.0% to 5.5% for a mortgage)
- Variable rate only (no fixed option)
- 65% standalone LTV limit (or 80% combined with mortgage)
When to Use HELOC Instead
- You have a large penalty to break your mortgage ($15,000+)
- You are within 12 months of mortgage maturity (wait and refinance at renewal)
- You only need $50,000 or less (not worth the refinancing costs)
- You plan to repay within 2 to 3 years (shorter timeline favors HELOC despite higher rate)
When to Refinance Instead
- You are at mortgage maturity (no penalty)
- You need $100,000+ (refinancing is more cost-effective for large amounts)
- You want a fixed rate and certainty on payments
- You plan to hold the debt long-term (5+ years)
Tax Implications of Refinance-to-Purchase
The tax treatment of your refinanced mortgage depends on how you use the funds.
Interest on Investment Property Mortgage: Deductible
The mortgage on your investment property is fully deductible. Interest, property taxes, insurance, maintenance, and other rental expenses reduce your taxable rental income.
Interest on Primary Residence Refinance: Partially Deductible
If you refinance your primary residence and use the funds to buy an investment property, the interest on the portion used for investment is tax-deductible.
Example:
- You refinance from $300,000 to $464,000 (pulled out $164,000)
- You use $100,000 for investment property down payment
- You use $64,000 for personal use (renovations, emergency fund, etc.)
Tax treatment:
- Interest on $300,000 (original mortgage): Not deductible (primary residence)
- Interest on $100,000 (used for investment): Deductible (investment purpose)
- Interest on $64,000 (personal use): Not deductible
Critical: Keep meticulous records. Your accountant needs to know exactly how much of the refinanced amount was used for investment vs personal use.
How to Track
- Open a separate bank account for investment funds
- Deposit the $100,000 refinance proceeds into that account
- Use that account only for investment property expenses
- Provide your accountant with clear documentation
Real Calgary Example: Refinance-to-Purchase Success
Profile:
- Investor: Sarah, 35, nurse, income $92,000/year
- Primary residence: Purchased 2019 for $420,000, current value $550,000
- Current mortgage: $285,000 at 4.6%
Year 1 (2025):
- Refinanced to $440,000 (80% of $550,000)
- Accessed: $155,000
- Costs: $9,800 (penalty + legal + appraisal)
- Net proceeds: $145,200
Investment Property 1:
- Purchase price: $430,000 (SE Calgary townhouse)
- Down payment: $86,000 (20%)
- Closing costs: $8,500
- Total invested: $94,500
Remaining cash: $50,700 (reserves)
Year 5 (2029):
- Primary residence value: $610,000 (appreciation)
- Investment Property 1 value: $475,000 (appreciation)
- Primary residence mortgage paid down to: $410,000
- Investment property mortgage paid down to: $325,000
Available equity:
- Primary residence: ($610,000 × 80%) - $410,000 = $78,000
- Investment Property 1: ($475,000 × 80%) - $325,000 = $55,000
- Total equity available: $133,000
Investment Property 2:
- Purchase price: $460,000
- Down payment: $92,000
- Closing costs: $9,000
- Total invested: $101,000
Remaining reserves: $32,000
Current portfolio (Year 5):
- Primary residence: $610,000 (equity: $200,000)
- Property 1: $475,000 (equity: $150,000)
- Property 2: $460,000 (equity: $92,000)
- Total portfolio value: $1.545M
- Total equity: $442,000
Strategy: Used appreciation and equity growth to fund second property without additional cash savings.
Common Mistakes to Avoid
Mistake 1: Refinancing to the Maximum Every Time
Pulling equity to 80% LTV leaves you with zero buffer. If property values drop 5%, you are underwater (owe more than the property is worth).
Better approach: Refinance to 75% LTV, leaving a 5% equity cushion.
Mistake 2: Ignoring Cash Flow
You focus on appreciation and forget that you need to make monthly payments. Negative cash flow of $300/month per property adds up across multiple properties.
Fix: Budget for negative cash flow and maintain reserves.
Mistake 3: No Cash Reserves
You pull every dollar of equity and invest it all. When a tenant moves out or a furnace breaks, you have no cash to cover it.
Fix: Keep 6 to 12 months of expenses in reserves before buying another property.
Mistake 4: Overleveraging Income
You refinance and buy properties until your debt service ratios are at the maximum (44% to 50%). When interest rates rise at renewal, you cannot afford the new payments.
Fix: Keep TDS below 42% and stress-test your budget at rates 2% higher than current.
Final Thoughts
Refinance-to-purchase is the strategy most Calgary real estate investors use to scale beyond their first property. It unlocks trapped equity, accelerates portfolio growth, and leverages appreciation to build wealth.
But it is not risk-free. You are increasing debt, reducing liquidity, and betting on continued appreciation. Done conservatively with strong income, cash reserves, and disciplined property selection, it works. Done aggressively with maximum leverage and no reserves, it can lead to financial distress.
If you have significant equity in your primary residence and strong income, refinance-to-purchase is one of the most powerful tools available. Use it strategically.
For more investment property strategies, see the Complete Guide to Investment Property Financing in Calgary.
Questions about refinance-to-purchase or investment property financing? Contact Jay: jaysinghmortgage@gmail.com or 403.409.1126.
