Mortgage refinancing
Mortgage refinancing
Refinance and start fresh
Refinancing your mortgage can help lower your payments, consolidate debt, or give you access to home equity for renovations.
What is refinancing a mortgage?
When you refinance a mortgage, you break your current contract and start fresh with a new mortgage, either with the same lender or a different one. If you refinance at the end of your current mortgage term, you might avoid prepayment charges. There are always some costs when you refinance, but there can be great benefits, too.
Consolidate debt
Combine higher-interest credit card debt and other loans into one payment with a lower rate to save money.
Reduce mortgage costs
Redesign your mortgage so it works for you – change your term, payments, amortization period, and more.
Access home equity
Borrow money, up to 80% of your home’s value to pay for expenses like home renovations, education, and investments.
Discover great rates
How to access and use your home equity
The most common reasons for accessing home equity include:
- Financing renovations or repairs to your property that increase your home’s value.
- Covering large or unexpected costs, like a tuition payment or an emergency.
- Investing more to earn more, like maximising your RRSP contribution.
How much home equity do you have?
Your available home equity is the difference between 80% of your home’s market value and the outstanding balance on your mortgage (plus any debts you have that you secured using your property).
You can estimate your home’s value based on recent sales of properties similar to yours in the same area; but to be sure, you need a professional appraisal. Then, subtract the amount you currently owe (your outstanding principal balance) from your home’s value. That gives you an estimate of your available equity.
For example, let’s calculate how much you can borrow if your home is worth $650,000 and your remaining mortgage is $250,000.
$520,000 (80% of your home value) - $250,000 = $270,000
Talk to a mortgage advisor about your home equity
How you can access your equity
The most common way for homeowners to borrow money secured by their home’s value is a home equity line of credit. A line of credit is very flexible – you can borrow money as much or as little as you need, whenever you want, up to the credit limit. Then, you can pay it back and borrow again.
Learn more about Meridian’s Flex Line Mortgage, which includes a home equity line of credit
How much does it cost to refinance?
When you refinance you create a new mortgage, so there are charges for legal, set-up, and appraisal services. How much you pay in fees will depend on several factors, including your mortgage amount, when you choose to refinance, the kind of appraisal you’ll need, and the value, location, and type of property you have. To help you decide whether the benefits of refinancing outweigh the potential costs, here’s an overview of the fees and penalties associated with refinancing a mortgage in Ontario.
Note: When you switch mortgages, your new lender may cover some of associated costs, so always make sure you ask.
| Penalty or fee | Refinancing costs |
|---|---|
| Mortgage registration fee | $70 to $80 |
| Legal fees | $700 to $1,000 |
| Appraisal fee | $300 to $500 |
| Mortgage discharge fee (if you switch to a new lender) | $200 to $400 |
The exact amount for the mortgage prepayment fee will depend on your situation. It’s the greater of:
-
3 month’s interest, or
-
The Interest Rate Differential (IRD)
Talk to a mortgage specialist about the exact amount.
Note: There’s no penalty if you're refinancing at the end of your term, with your current lender.
Frequently asked questions
When you refinance a mortgage, you break your current contract and start fresh with a new mortgage, either with the same lender or a different one. When you renew your mortgage you stay with the same lender, and you can update many aspects of the mortgage when you renew, such as the payment schedule, interest rate, and term. Learn more about renewing your mortgage.
When interest rates fall, the prospect of getting a lower rate and lower payments is a tempting reason to refinance, especially if you really need to cut costs.
It’s important to remember that refinancing comes with costs. There are charges related to breaking your mortgage agreement, and fees that come with creating a new mortgage. It’s possible that, once you do all the math, the money you’ll save by refinancing will be worth it, but it’s not guaranteed.
The best thing to do is ask a mortgage advisor. There’s no downside to free, expert advice.
There are some fees and penalties you have to pay when you refinance. The one you hear about most often is a prepayment penalty. This is a fee that your mortgage provider charges if you:
- Pay more than the allowed prepayment amount toward your mortgage
- Break your mortgage contract
- Switch your mortgage to another lender before the end of your term
- Pay back your entire mortgage before the end of your term, including when you sell your home
The exact amount charged as a prepayment penalty is the greater of either:
- 3 month’s interest, or
- The Interest Rate Differential (IRD)
Note: Some mortgages come with prepayment privileges. For example, Meridian mortgages allow you to pay off up to 20% more of your mortgage each year through a combination of making prepayments to reduce your principal mortgage balance and increasing your original monthly mortgage payments.
The Interest Rate Differential (IRD) is the difference between the interest fees left to pay over your remaining mortgage term at your current rate, and the interest fees that would be paid over a similar mortgage term at a different rate.
The IRD is typically used to calculate prepayment penalties for fixed-rate mortgages.
