Renewal and Refinancing

Costs of Refinancing in Canada

Costs of Refinancing in Canada
Written by
  • nesto
| Apr 26, 2022
Reviewed, Jun 6, 2023

Table of contents

    Key Takeaways

    • You can refinance your mortgage early to benefit from a lower interest rate, or access equity in your home.
    • Refinancing can help you access equity in your home for things like home improvements, debt consolidation, or buying a second property.
    • Refinancing has a number of associated costs, particularly if you are breaking your mortgage term early, or switching lenders.
    • Refinancing requires research and carefully weighing up the pros and cons.

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    Reasons to Refinance Your Mortgage

    People refinance their mortgages for all kinds of reasons. Generally, the most popular reasons to refinance include getting a better rate or accessing equity, either to consolidate debt, fund home improvements, or to purchase another property. 

    • Refinancing For a Better Interest Rate

    If interest rates have dropped since you first got your mortgage, it may make sense to refinance. For some, the savings over time of a new mortgage rate outweigh the costs of refinancing, such as prepayment penalties incurred due to breaking your mortgage.

    • Refinancing To Access Your Home’s Equity

    In a stable housing market, the equity in your home grows as you pay down your mortgage. Equity is a measure of your property that you own, and are not still paying off a loan for. By refinancing, you can access equity through a new mortgage loan, or other form of secured loan. Many people use their equity to pay for renovations, a new vehicle, tuition, or to consolidate high-interest debts.

    Costs of Refinancing Your Mortgage

    While there are fees associated with refinancing, for many, the benefits can outweigh these costs. Ultimately, it totally depends on your situation and the reasons you have for refinancing. Here’s a breakdown of the costs of refinancing your mortgage in Canada.

    Mortgage refinancing costs at a glance

    Fee type Cost
    Prepayment penalty Break term early: ~$1000 minimum. (Highest of either 3 months’ interest or IRD).*
    *Blend and extend mortgage incurs no prepayment penalty.
    Refinance at renewal: None
    Mortgage discharge fee $200-300 ($0 if same lender)
    Mortgage registration fee $50-150 (depending on province)
    Home appraisal $300 – 500
    Legal fees $750 – 1500

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    Types of Fees You’ll Pay When Breaking a Mortgage

    There are a number of fees to take into consideration when breaking your mortgage term early. As we outlined in the table above, these include prepayment penalties (also known as mortgage breakage penalties), discharge fees, appraisal and inspection fees, and more. While some of these fees mimic the fees you would normally pay when buying a property, such as legal or appraisal fees, some are unique to refinancing, since you will be breaking your mortgage contract before the term has matured. 

    Mortgage Breakage Penalty

    A mortgage breakage penalty, otherwise called a prepayment penalty, is a contractually outlined fee that you would pay for breaking your mortgage before the term has expired. Generally, mortgage terms last 5 years. If you decide to refinance before your term is up, you can expect to pay a minimum of $1000 to do so. A common formula for mortgage breakage penalties in Canada is the highest of either 3 month’s interest, or the interest rate differential (IRD). The IRD is usually calculated as the difference between all the interest fees left to pay on your current term for 2 interest rates.

    Some mortgages, like blend and extend mortgages, do not incur prepayment penalties. You will also not be expected to pay a prepayment fee when your mortgage is set for renewal. Renewal is a normal part of a mortgage term’s maturity, and should not be confused with refinancing, where a mortgage is broken early.

    Mortgage Discharge Fee

    When you change lenders, the information on your property’s title has to be updated. This is known as a mortgage discharge. Some lenders charge you a mortgage discharge fee to do so. They are typically between $200-300. Many provinces and territories regulate the maximum amount a lender can ask you to pay in discharge fees.

    Appraisal & Inspection Fees

    Home appraisals and inspections are similar, but differ in some key details. A home appraisal is used to determine the value of your property in current market conditions. Appraisals help situate your house in the context of other properties in the area, and are not as in-depth as a home inspection. While lenders typically mandate home appraisals, home inspections are generally ordered by buyers who want to more thoroughly examine a property. Both appraisals and inspections can cost anywhere between $300 to $500.

    Mortgage Registration Fee

    Regardless of whether you’re switching to a new lender or not, you must pay a mortgage registration fee when you refinance. Refinancing involves your lender removing the current mortgage amount from your property’s title and re-registering it. Registration fees are between $50 and $150, depending on your province. 

    Legal fees can be one of the more significant costs of refinancing. When you refinance, you will need to hire a real estate lawyer to examine your mortgage contract, register the new mortgage, and conduct a title search to ensure your property has no liens against it. For refinancing in Canada, lawyers can cost anywhere between $750 – $1500. It’s also worth speaking to your new lender, since they may help you cover your legal fees as part of their agreement.

    Breaking Your Mortgage: Early vs End of Term

    There are some significant differences in costs if you choose to break your mortgage early, versus refinancing at the end of your mortgage term. The most significant of these fees is the prepayment penalty, or mortgage breakage fee. Here is a breakdown of the fees associated with breaking your mortgage early versus refinancing end of term.

    Breaking Your Mortgage Early

    Leaving lender Staying with the same lender
    Mortgage prepayment penalty – MSV  Yes Yes
    Mortgage discharge fee – MSV  Yes No
    Mortgage registration fee – MSV  Yes Yes
    Legal Fees Yes Yes

    End of Term Refinance

    Leaving lender Staying with the same lender
    Mortgage prepayment penalty – MSV  No No
    Mortgage discharge fee – MSV  Yes No
    Mortgage registration fee – MSV  Yes Yes
    Legal Fees Yes Yes

    Frequently Asked Questions

    How Much Does It Cost to Refinance My Mortgage?

    Expect to pay between $1,000 – $3,000+ to refinance your mortgage in Canada. Ultimately, the cost of refinancing depends on whether you’re switching lenders, and how much of your original mortgage term you have left. You will have to pay legal fees and registration fees regardless, and taken together, these can cost between $800 – $1,650. If you break your term early, you’ll also have to pay a prepayment penalty. Depending on how long you have left on your mortgage, this could cost you in excess of $1,000. 

    Should I Refinance or Renew My Mortgage in Canada?

    Choosing to refinance depends on your situation. If you need to access your equity, or you want to lock in at a better interest rate, refinancing can be a way to save money over time and help you free up cash for other things in your life. However, it’s worth weighing up the pros, cons, and costs of refinancing based on your unique situation. There are also a number of alternatives to refinancing, such as applying for a Home Equity Line of Credit, or getting a second mortgage.

    Final Thoughts

    Refinancing can be useful if done correctly and for the right reasons. With a refinance, you can access up to 80% of your home’s value minus the outstanding mortgage balance, and it can be a great way to protect your long term financial health. Use our refinance calculator to see how much equity you could tap into if you refinanced, based on today’s rates. 

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