Mortgage Refinance Calculator
Should you refinance your mortgage? Ratehub.ca calculates your new mortgage payment with a lower rate or after you’ve accessed home equity. We’ll also estimate any penalties you may incur.
Disclaimer: Please note that the calculation results are estimates based on our most up-to-date information sourced from lenders' publicly stated methodology and first-hand accounts. This information may not be accurate and is subject to change. The results do not include special offers, such as cash back incentives, or any discharge, registration, reinvestment or transfer fees you may also incur. For an exact penalty calculation, contact your lender directly.
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Jamie David, Business Director Mortgages
Why use a mortgage refinance calculator?
Refinancing your mortgage can be a really valuable option as a homeowner. However, there are costs associated with refinancing, which can outweight any potential savings you might make. As a result, it's important to understand how much a mortgage refinance will cost you before you pull the trigger - that's where a mortgage refinance calculator comes in handy.
The mortgage refinance calculator above will do the hard work for you, estimating the penalties associated with refinancing, as well as the potential savings you'll make from getting a new mortgage at today's rates. While there are some non-financial reason you might want to refinance your mortgage, our calculator gives you the information you need to start making a decision.
Why consider refinancing?
Refinancing a mortgage is when you end your current mortgage and start a new one. You can do this with your current mortgage provider or a new one. If you're refinancing your mortgage while you're in the middle of an exiting mortgage term, you're likely to be hit with a prepayment penalty - more on that below.
There are two main reasons you’d consider doing a refinance: To lower your existing mortgage rate, or to access the equity you’ve built in your home as cash.
1. Refinance to lower your mortgage rate
To determine if you can save money with a lower mortgage rate, use our calculator to compare the monthly interest savings against the cost to refinance. As most mortgage brokers and lenders will cover your legal costs, the main cost you need to worry about is your break of mortgage penalty, or prepayment penalty. This penalty is charged by your lender for breaking your mortgage contract early and is based on your original contract date, current mortgage balance, mortgage rate, and other factors.
2. Refinance to access home equity as cash
As you pay off your mortgage, you'll gradually build up equity in your home. Your home equity is calculated by taking the current value of your home, then subtracting from that your outstanding mortgage amount. Many lenders will allow you to borrow from them, using your home equity as security for the loan - this is what accessing your equity is all about.
If you’re considering a refinance to access your home equity, you’re not alone. According to the Canadian Association of Mortgage Professionals, last year 10% of Canadian mortgage holders accessed an average $49,000 of equity from their homes. The large majority of this equity was used for debt consolidation or home renovation.
If refinancing for equity, the first thing you want to determine is the maximum amount of equity you can access. In Canada, mortgage holders can access a maximum of 80% of their home's value, less any outstanding mortgage balance. Unfortunately, accessing this equity comes at a cost – your lender will change you a penalty for breaking your mortgage early. Use Ratehub.ca’s refinance calculator to determine your maximum equity and the corresponding penalty. If you’re refinancing in a falling interest rate environment, you may be able to take advantage of interest savings as a bonus.
How much are prepayment penalties?
When you agree to a particular mortgage term, your are signing a contract for that amount of time, generally between 1 and 10 years. If you break your mortgage before that term is over, you'll be charged a prepayment penalty, as a way to compensate the mortgage provider. How much this can cost varies wildly based on the type of mortgage you have, the time remaining on your term, as well as your mortgage provider - each lender has a different way to calculate prepayment penalties.
The exact prepayment penalty calculation that applies to you will be laid out in your contract, but there are two methods used, outlined below.
3 month's interest
For mortgages with a variable rate, you'll generally be charged a prepayment penalty equal to 3 month's interest of your outstanding mortgage at your current rate. For example, if the interest due in your next monthly payment is $1,500, your prepayment penalty would be $4,500. Some mortgage providers use a different number of months (eg 4 month's interest).
Interest Rate Differential (IRD)
For fixed-rate mortgages, your prepayment penalty will be either 3 month's interest or the Interest Rate Differential (IRD), whichever is higher. The Interest Rate Differential is a way to figure out the difference between how much interest you agreed to pay in your current mortgage and the interest you'd be paying if you took out a mortgage today, using a comparable current rate.
Here's where things get tricky. IRD calculations are extremely variable as they depend on a lot of different factors. As well as your original rate, the amount left on your mortgage, and the remaining term of your contract, the IRD also depends on today's mortgage rates, what comparison rate your lender uses, as well as the specific calculation used. IRD charges can sometimes get into the tens of thousands of dollars, although they tend to be lower the closer you are to the end of your term.
The Bottom Line
Even with a very high prepayment charge, it can still be financial worthwhile to refinance your mortgage. However, you want to be fairly confident of that, and the calculations required can be complex. That's what our mortgage refinance calculator attemps to help you with.
We've factored in all of the important variables into our refinance calculator at the top of this page. That's why we ask you for your mortgage provider, your original rate, and the length of your term. It's not always going to be perfect, but it's the first piece of information that you'll need to decide whether refinancing your mortgage is worth it for you.