Costs of Refinancing
Jamie David, Sr. Director of Marketing and Mortgages
People refinance their mortgage to get a lower interest rate or access the equity they’ve built in their home. While this can be the best financial solution in some cases, it’s important to consider the costs associated with a refinance to make sure it’s the right decision for you.
Here’s how a refinance works: through a refinance, you can access up to 80% of your home’s value, less the outstanding balance of your mortgage. Let’s look at an example where your home is valued at $300,000, and you have an outstanding mortgage balance of $200,000.
Step 1 : Determine available equity
$300,000 (home value)
x 80% (max loan-to-value ratio)
- $200,000 (max loan-to-value ratio)
= Available equity: $40,000
There are two types of refinances: within your term and at the end of your term. If you choose to refinance within your term it would be to access a lower mortgage rate or to take equity out of your home. If you refinance at the end of the term it would be to access equity, as you are already eligible to shop for the lowest rates on the market. In both cases, there are several fees involved throughout the refinance process.
The chart below outlines which fees need to be paid under each circumstance. You can also see how much refinancing your mortgage will cost you by using our mortgage refinance calculator.
Mortgage pre-payment penalty
If your refinance requires you to break your mortgage early (before your term is up for renewal), you’ll have to pay a mortgage pre-payment penalty fee, in addition to the other fees listed in the chart above. If you have a fixed rate mortgage, your pre-payment penalty will be the greater of:
- Three months’ interest or
- The interest rate differential (IRD).
If you have a variable rate mortgage, your penalty will be three months’ interest. If you are refinancing when your mortgage term is up for renewal, you don’t have to pay a prepayment penalty.
Mortgage discharge fee
If you are switching lenders, you’ll need to pay a fee to discharge your mortgage from your current lender. Each lender sets its own fee rates, and every province is different, but discharge fees are typically between $200 - $350. The chart below shows the varying discharge fees charged by lenders across the country.
Mortgage registration fee
Whether you’re leaving or staying with your current lender, you must pay a mortgage registration fee. Part of the refinance process involves your lender removing the current mortgage amount from the title on your property and re-registering it with a new mortgage amount. Your registration fee is governed by your provincial government and is typically around $70.
When you refinance your mortgage, you’ll need to consult with a real estate lawyer. Your lawyer will review your mortgage loan and its terms and conditions, register the new mortgage and conduct a title search to make sure no leans have been made against your property. It’s the lawyer’s job to facilitate the entire financial transaction between you and the lender. Legal fees for a refinance typically range between $700 and $1,000.
If you’re switching lenders and your mortgage balance is greater than $200,000, your new lender may pay your legal fees for you.
References and Notes
- In this case, you also have the option to blend and extend your mortgage.
- If you have a collateral mortgage and you wish to access more equity at the end of your term, you can do so without incurring any of the fees mentioned above.