Do You Need an Appraisal to Refinance Your Mortgage in Canada?

Full appraisal, drive-by, or automated valuation?

Canadian lenders work with three levels of valuation. An automated valuation model (AVM) is a statistical estimate built from sales data and property records, with nobody visiting the property. A drive-by, or exterior-only appraisal, has a designated appraiser inspect the outside of the property and the surrounding neighbourhood, then complete the analysis from records and comparable sales. A full appraisal adds an interior inspection, so the appraiser can verify size, layout, condition and any recent work.

Which one you get is the lender's decision. AVMs are most often accepted for standard urban properties where the requested loan-to-value is modest and recent comparable sales are plentiful, which is why a unit in a large condominium complex is a better AVM candidate than a rural acreage. Lenders escalate to a full appraisal when a property is rural or on a large lot, has unusual construction or a secondary suite, has been substantially renovated, is multi-unit or mixed-use, or when the borrower wants a high share of the value. Ask your broker or lender early which route applies, since it affects cost and timing.

How loan-to-value is calculated on a refinance

Loan-to-value (LTV) is the total mortgage debt registered against the property divided by its current market value. On a refinance, that value comes from whatever valuation the lender accepts, not from your municipal assessment or an online estimate. Municipal assessments use a mass-appraisal method and a legislated valuation date, and often differ materially from market value.

Most conventional refinances in Canada are capped at 80 percent of appraised value, since mortgage default insurance is generally not available on a refinance. Your available funds are the appraised value times the lender's maximum LTV, minus what you still owe. On a home appraised at $800,000 with an 80 percent cap and $520,000 outstanding, roughly $120,000 is available before fees, and if the appraisal lands low, that shortfall comes straight off the top.

Where the new financing includes a readvanceable home equity line of credit, the revolving portion is normally capped at a lower share of value, with revolving and amortizing pieces together staying inside the overall limit.

Accessing equity, consolidating debt, buying out a co-owner

Canadians most often refinance to fund renovations, to consolidate higher-interest unsecured debt into one lower-rate payment, to raise a down payment on a second property, or to fund a business. In every case the appraised value sets the ceiling on what is possible.

Separation and matrimonial buyouts are a special case. Refinancing to pay out a former spouse usually needs an appraisal that satisfies both the lender and the separation agreement, and lawyers often want a retrospective value as of the date of separation rather than today's. Those are two separate assignments, so say so up front.

If the property is a rental, or you are changing its use, keep the report. A dated, professionally prepared opinion of value is useful support if the Canada Revenue Agency later questions a deemed disposition or an adjusted cost base. Be aware that in appraisal circles the same initials, CRA, denote a professional designation, explained below.

B-lenders, credit unions and private lenders

Alternative and private lenders almost always require a full appraisal with an interior inspection, and their rules tend to be stricter than a chartered bank's. Many keep an approved panel of appraisal firms and will not accept a report from outside it, many require the report to be recent, commonly within about 90 days, and most require that it name them as the intended user, so a report you ordered for your own purposes may not transfer.

With second mortgages and private financing, the appraisal carries more of the underwriting weight than it does at a bank. Expect comment on marketability and estimated exposure time, and expect rural or unusual properties to be held to a lower maximum LTV.

Who does the appraisal, who pays, and how long it takes

Refinance appraisals in Canada are performed by appraisers designated by the Appraisal Institute of Canada (AIC). Two designations matter: CRA, the Canadian Residential Appraiser designation, covering residential properties of up to four units and individual residential dwelling units; and AACI, Accredited Appraiser Canadian Institute, covering all property types, including commercial, industrial, multi-residential and land. To settle a common confusion, here CRA is an appraiser designation; the federal tax authority, the Canada Revenue Agency, simply shares the initials. Both require work to the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).

The borrower normally pays, either directly to the appraisal firm or as a closing cost, though some lenders and brokers cover or rebate the fee as part of an offer. Fees for a straightforward urban home commonly sit in the low hundreds of dollars, with rural, acreage, multi-unit and commercial assignments higher and rush service above standard pricing. Inspections are usually booked within a few business days and take well under an hour for a typical home, with the written report often following a few business days later. Rural, unique or thinly traded markets take longer.

Getting your refinance appraisal arranged

If you are not sure whether your lender will require a full appraisal, it costs nothing to have a quote in hand. Appraisal Canada is a matching service: we connect you with an AIC-designated appraiser holding the right designation for your property, CRA for most residential work and AACI for commercial, multi-residential, land, and machinery and equipment, working under CUSPAP.

Tell us the property type, the location and who the report is for, and we will send back a free, no-obligation quote and a realistic turnaround. We work in English, French and Spanish.