When does refinancing a mortgage make sense in Canada?
Refinancing usually makes sense when the interest saved over the time you will keep the mortgage exceeds the break penalty plus discharge and legal fees. Because Canadian fixed mortgages carry an Interest Rate Differential (IRD) penalty that can be very large, the rate drop often has to be substantial to come out ahead.
How do I calculate my refinance break-even point?
Divide your total upfront cost (the break penalty plus discharge, legal, and appraisal fees) by your monthly payment savings. The result is the number of months you must keep the new mortgage to recover those costs. If you plan to stay past the break-even, refinancing typically pays off.
What costs are involved in refinancing in Canada?
The main costs are the prepayment penalty (three-month interest or IRD, whichever is greater on a fixed mortgage), a mortgage discharge fee, legal/registration fees, and sometimes an appraisal. Some lenders offer to cover part of these costs, but they are usually recovered through a slightly higher rate.
Can I refinance to access home equity?
Yes. Refinancing can let you borrow against your equity up to 80% of your home's value, consolidating higher-interest debt or funding renovations. This increases your mortgage balance, so weigh the added interest against the benefit. Use the Home Equity Available calculator to see your borrowing room.