Can You Refinance a Mortgage with Bad Credit?

May 21, 2025

Short answer: yes. But you'll probably need to turn to a B lender or private lender.

Written by Barry Choi

Contributing Writer

Edited by Beth Buczynski

Head of Content, New Markets

Written by Barry Choi

Contributing Writer

+ 1 more

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If your credit score has dropped and you need to refinance your mortgage, you may be wondering if anyone will approve your application.

Certain lenders in Canada, known as alternative lenders or B lenders, specialize in helping borrowers with credit challenges. Depending on the overall state of your finances, you may be able to refinance with one of them.

Options for refinancing a mortgage with bad credit

A low credit score can be a major obstacle to refinancing your mortgage.

Canada's Big Six banks can't approve mortgage applications for borrowers with credit scores much below 680. If your credit score is in the 500s or low 600s, these lenders, which typically offer lower mortgage refinance rates, won't be an option.

Instead, you'll need to consider refinancing with:

B lenders. Also known as alternative lenders, B lenders often have more relaxed qualification requirements. The interest rate you’re offered by a B lender will depend on your individual situation, but will be higher than the rates you see advertised by traditional lenders.
Private lenders. You can also consider borrowing from private equity firms, mortgage investment corporations or individuals. These lenders typically charge the highest interest rates but have the most relaxed qualification requirements.

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Pros and cons of refinancing with a bad-credit lender

Pros

Easier to qualify. Alternative lenders typically have lower qualification criteria compared to A lenders.
A temporary solution. B lenders typically offer mortgage terms of three years or less.
A viable last resort. A reputable alternative lender is generally a better option than a private lender.

Cons

Higher rates. Alternative lenders generally charge higher mortgage rates.
More risk. A high-interest refinance might not be a fit for someone with a low credit score.

What it means to refinance your mortgage

Refinancing your mortgage replaces your current mortgage with a new one, which ideally has better terms.

Although breaking your existing mortgage to refinance may incur prepayment penalties, legal fees and an appraisal fee, it could be worthwhile if it helps you save money in the long term or access cash for more immediate needs.

Mortgage refinancing eligibility

Qualifying for mortgage refinancing is just like qualifying for a new mortgage. Even if you qualified for your current mortgage only a few years ago, you’ll need to go through the process again. Lenders will typically check your:

Identification.
Proof of income, such as proof of employment and tax returns.
Debt service ratios, including other financial obligations such as car loans.
Credit score and history.

As part of this process, lenders will check to see if you pass the mortgage stress test, which evaluates your finances against a higher qualifying rate.

Your qualifying rate is either 5.25% or the rate you’ve negotiated with your lender plus 2%, whichever is higher. For example, if your lender offers you a rate of 6.54%, you’d need to be able to qualify at a rate of 8.54%.

Frequently asked questions

How much can you borrow when refinancing?

When refinancing your mortgage, you can typically borrow up to 80% of the appraised value of your home. However, you need to deduct your outstanding mortgage balance and any other loans you have secured against your home, such as a home equity loan or home equity line of credit (HELOC).

For example, say your home is worth $700,000. Technically, you could qualify to borrow up to $560,000. However, if you have $500,000 remaining on your existing mortgage, you’d only be able to access $60,000 of your equity through a refinance.

You don’t have to borrow against your equity when refinancing your mortgage — it’s just an option. Some homeowners refinance just to take advantage of lower interest rates and pay less for their mortgage in the long run, or to get better mortgage terms.

What credit score is needed to refinance a mortgage?

A higher credit score generally results in getting the most competitive refinance rate, but different lenders have different credit score standards. Federally regulated banks, like the Big Six, prefer credit scores to be in the high 600s — at a minimum. Alternative lenders may approve a refinance if a borrower's credit score is in the 500s.