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Mortgage Refinancing in Canada
Your mortgage doesn't necessarily have to remain exactly the same until your next renewal.
A mortgage refinance replaces or restructures your existing mortgage and can allow you to adjust the financing around your home.
People refinance for many reasons.
Some want to consolidate debt. Others are renovating, investing, restructuring finances or trying to improve monthly cash flow.
The important question isn't simply:
"Can I refinance?"
It's:
"Will refinancing improve my overall financial position?"
What Does Refinancing a Mortgage Mean?
Refinancing generally involves making a material change to your existing mortgage financing.
That could involve:
- increasing the mortgage amount
- changing the amortization
- changing lenders
- restructuring mortgage debt
- accessing available home equity
Your ability to refinance will depend on factors including available equity, income, credit, property value and lender requirements.
Why Do Canadians Refinance?
Common reasons include:
Debt consolidation
Using available home equity to pay higher-interest debts.
Renovations
Financing improvements to the property.
Investment
Accessing equity for another investment or property, where appropriate.
Cash-flow restructuring
Changing the mortgage structure to help manage monthly obligations.
Major expenses
Helping fund significant planned expenses.
Refinancing Isn't Free Money
Home equity can be useful, but it should be treated carefully. When equity is borrowed, it becomes debt secured against your home. Refinancing higher-interest debt can potentially reduce interest costs or monthly payments, but extending that debt over many years can increase the total amount paid. That's why the comparison should consider more than the monthly payment.
Ask:
- What debt am I paying off?
- What interest rate am I paying today?
- What will the new borrowing cost?
- How long will repayment take?
- What fees or penalties apply?
- What behaviour created the debt?
- What is the plan to prevent it from rebuilding?
What Costs Can Be Involved?
Depending on the mortgage and transaction, refinancing may involve costs such as:
- mortgage prepayment penalties
- appraisal fees
- legal expenses
- discharge fees
- registration expenses
These need to be considered when determining whether refinancing makes financial sense.
Is Renewal a Good Time to Refinance?
It can be.
Refinancing at renewal may avoid certain prepayment penalties associated with breaking a closed mortgage before maturity.
However, qualification and other costs can still apply.
Planning ahead gives you more time to compare the alternatives.
Start With the Objective
The mortgage itself isn't the objective.
The objective might be:
- reduce expensive debt
- improve monthly cash flow
- renovate the home
- fund another investment
- restructure household finances
Once the objective is clear, you can evaluate whether refinancing is the right tool.
A Haystax Mortgage professional can help you review the available options and understand the trade-offs before changing your mortgage. Find a Haystax Mortgage location here.
We work for you, not the banks, providing access to a wider range of mortgage options.
Banks offer only their mortgage products and rates. Unlike them, Mortgage Brokers have access to a variety of lenders, including banks, credit unions, monoline lenders, private financing, and more.
You're at HOME with Haystax!
Frequently Asked Questions
What does refinancing a mortgage mean?
Refinancing means replacing or restructuring your existing mortgage with new financing.
A refinance may allow you to increase the mortgage amount, change the amortization period, change lenders, access available home equity or consolidate other debts.
Because refinancing changes the existing financing arrangement, borrowers generally need to qualify for the new mortgage under the applicable lender requirements.
How much equity do I need to refinance?
The amount of equity required depends on the mortgage product, lender and purpose of the refinance.
Home equity is the difference between the value of your property and the debt secured against it. In many traditional refinance situations, lenders will limit total borrowing to a percentage of the property's appraised value.
A mortgage professional can determine the amount of usable equity after considering the property's value, existing mortgage balance and lender requirements.
Can I refinance my mortgage to pay off debt?
Yes. Homeowners with sufficient available equity may be able to refinance their mortgage and use some of the proceeds to pay higher-interest debts such as credit cards, loans or unsecured lines of credit.
This can reduce interest costs and monthly debt payments, but the strategy should be evaluated carefully.
Moving a short-term debt into a long-term mortgage can lower the monthly payment while extending repayment over many years. A good consolidation strategy therefore includes a plan for paying the debt down rather than simply moving it.
Can I refinance to renovate my home?
Yes. Homeowners may be able to access available home equity through refinancing to finance renovations or improvements.
Whether this makes sense depends on the amount required, available equity, current mortgage terms, refinancing costs and the homeowner's overall financial situation.
Before refinancing, compare the complete cost of borrowing with other financing options rather than considering only the monthly payment.
What does it cost to refinance a mortgage?
Mortgage refinancing can involve several costs depending on the existing mortgage and new financing.
Potential costs can include a prepayment penalty if the current mortgage is being broken before maturity, appraisal fees, legal fees, discharge fees and registration costs.
These costs should be included when calculating whether the savings or other benefits of refinancing justify changing the mortgage.
Is it better to refinance at renewal?
Renewal can be an attractive time to refinance because the existing mortgage term has reached maturity, which may avoid the prepayment penalty that could apply if a closed mortgage were broken earlier.
That doesn't automatically mean refinancing is the right choice.
You should still compare the new mortgage, qualification requirements, legal or appraisal expenses and the long-term financial effect of any additional borrowing.
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