Refinancing usually costs a few thousand dollars or less in fees, plus a penalty if you break your mortgage before the term ends. The penalty is often the biggest cost. Here is what you will pay, when you can refinance and how to tell if it is worth it.
Summary: A refinance replaces your mortgage with a new one. People do it to lower their rate, take out equity or pay off debt. Expect an appraisal, legal fees, a discharge fee and possibly a penalty. Compare the total cost with what you will save.
How does refinancing work?
You replace your current mortgage with a new one. The new mortgage pays off the old one, and you sign new terms. People refinance to get a better rate, take cash out of their home, pay off debt, or change things after a life event such as a divorce.
The lender looks at your income, credit, debts and the home’s value, just like a new mortgage. Both fixed and variable mortgages can be refinanced.
Read more: How to Refinance a Home Mortgage
When can I refinance?
You can refinance once you have enough equity. In Canada, a refinance can go up to 80% of your home’s value. As your home gains value and your balance goes down, your equity grows.
There is no set limit on how often you can refinance. But fees and penalties make it costly to do often. The best time is usually near the end of your term, when the penalty is small or gone.
What fees will I pay?
| Cost | What it covers | Typical range |
|---|---|---|
| Appraisal | Confirms what your home is worth | About $300 to $600 |
| Legal fees | Registers the new mortgage on title | About $800 to $1,500 |
| Discharge fee | Removes the old mortgage from title | About $200 to $400 |
| Penalty | Breaking your term early | Three months of interest, or more on many fixed rates |
Some lenders cover the appraisal or legal fees on a switch or refinance. Ask before you sign.
Yes, you need a lawyer. They register the new mortgage and pay out the old one.
Is there a penalty to refinance?
If you refinance before your term ends, usually yes.
- Variable rate: usually three months of interest.
- Fixed rate: the higher of three months of interest or the interest rate differential (IRD). The IRD can be thousands of dollars, especially with the big banks.
Ask your lender for a written penalty quote before you decide.
Read more: Lower Rate with Higher Penalty or Higher Rate with Lower Penalty?
Is refinancing worth it?
Add up the fees and penalty. Then compare that with what you save in interest or what the cash lets you do. It is often worth it when:
- You can get a much lower rate
- You are paying off credit cards or loans at much higher rates
- You need equity for a renovation, a buyout or a business
- Your term is ending soon, so the penalty is small
Your payment may go up or down. It depends on your new balance, rate and amortization.
Same lender or a new one?
You can refinance with your current lender or move to a new one. Staying can be simpler. Moving can get you a better rate or features. A mortgage broker can compare both for you.
What do I need to refinance?
- Proof of income, such as a job letter and pay stubs, or tax documents if you are self-employed
- Your latest mortgage statement
- Your property tax bill
- Photo ID
- An appraisal, which the lender usually orders
It is not hard with the right help. Most of the work is gathering paperwork.
Read more: Repairing Your Credit Before You Buy or Refinance
Talk to us
We will get your penalty quote, add up every cost and show you whether a refinance pays off. Book a call with Lisa or Kelly, or phone 289-723-2126.
Common questions
How much does it cost to refinance a mortgage in Canada?
Fees for an appraisal, a lawyer and a discharge often total about $1,300 to $2,500. If you break your term early, a penalty can add much more, especially on a fixed rate.
How soon can I refinance my mortgage?
You can refinance once you have enough equity, since a refinance can go up to 80% of your home’s value. The penalty is usually smallest near the end of your term.
Do I need a lawyer to refinance?
Yes. A lawyer registers the new mortgage on title and pays out the old one.
Will my mortgage payment go up if I refinance?
It depends. A lower rate can lower your payment. Borrowing more or shortening your amortization can raise it.