What is Mortgage Refinancing?
Refinancing your mortgage in Canada involves replacing your existing mortgage with a new one. You might do this to secure a better interest rate, access your home equity, or change your loan term.
Why Refinance a Mortgage in Canada?
Lower Interest Rates: If rates have dropped since you took out your mortgage, refinancing could lower your monthly payments.
Access Home Equity: Like a "cash-out refinance" in the U.S., you can refinance to borrow against the equity in your home for renovations, debt consolidation, etc.
Change Mortgage Type: Switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (or vice versa) is common in Canada.
Change Loan Terms: You can adjust the length of your mortgage to suit your financial goals.
Costs of Refinancing in Canada
Prepayment Penalties: Canadian lenders often charge penalties if you break your mortgage early, which can be significant, depending on the mortgage type (fixed vs. variable).
Appraisal Fee: Your lender may require a home appraisal to determine the current value of your property.
Legal and Admin Fees: These can include title searches and notary fees.
When Is Refinancing Not a Good Idea?
Prepayment Penalties: If the penalty for breaking your current mortgage is too high, refinancing may not be worth it.
Short-Term Plans: If you plan to move soon, refinancing might not make sense since it can take a few years to break even on closing costs.
In short, refinancing in Canada is a great way to lower your payments or tap into your home equity, but it's important to weigh the costs, especially the prepayment penalties, before making a decision.
