There are plenty of reasons to consider refinancing your mortgage as it can be a solid strategy for your long-term financial health. Whether it’s to lock in a lower interest rate, revise your terms or get access to the equity you’ve built up in your home, there’s a lot to learn about what refinancing a mortgage means and what fees you’ll encounter as part of the process.
Benefits Of Refinancing Your Mortgage
Refinancing a mortgage entails breaking your current mortgage to start fresh with a new one. By doing so, you’ll be able to change the features of your mortgage to suit your current needs. You can increase your amortization period, borrow more from your mortgage (if you have the home equity) to complete some much-needed home renovations, and even add features such as a home equity line of credit (HELOC).
Mortgage refinances can also be beneficial if you’re looking to consolidate your debt as the process can help by reducing your interest rate and improving your monthly cash flow in the process.
Be sure to do your homework and understand everything you need to know about refinancing and how it can work best for you. Make it a point to check on your credit score, create a realistic budget and understand all the costs associated with choosing this route. The last thing you want to do is make a big financial decision only to have skipped over the fine print and found yourself face to face with a long list of charges you weren’t aware of.
Costs And Refinancing Fees
Whether you’re considering refinancing to unlock better interest rates or get access to your home’s equity, what seems to be a smart financial decision, can quickly become a bad one, if you aren’t aware of what fees you’ll encounter in the process. Before making any big decisions, make yourself aware of the fees and penalties associated with refinancing, whether you’re planning to break your term early, or leave at the end of your current term.
Mortgage Prepayment Penalty
If refinancing will require you to break your current mortgage term early, you’ll be subject to a mortgage prepayment penalty fee, which will apply whether you stay with the same leader or choose to go elsewhere.
If you have a fixed mortgage, your prepayment penalty will be either three months’ worth of interest or the interest rate differential (IRD); whichever is greater. If you have a variable mortgage, your penalty will be three months’ worth of interest.
Keep in mind that if you choose to refinance when your mortgage term is up for renewal, you won’t have to worry about paying a prepayment penalty.
Refinancing your mortgage means you’ll need to consult your real estate lawyer, which means you’ll inevitably encounter legal fees as a result. This process will involve your lawyer reviewing the mortgage loan’s terms and conditions, registering the new mortgage and conducting a title search to ensure no liens have been made against the property. Essentially, it’s the lawyer’s job to facilitate the entire transaction between you and the lender to ensure the process goes smoothly and nothing of importance is overlooked. You can expect legal fees for your refinance to range between $700 –$1,000 on average.
Mortgage Registration Fee
Whether you choose to stay with your current lender, or go elsewhere for your refinance, you’ll be subject to a mortgage registration fee. As part of the refinancing process, your lender will remove the current mortgage amount from the title on your property and re-registering it again with a new mortgage amount. Depending on which province you reside in, your mortgage registration fee will vary as its regulated on a provincial level, but you can expect to pay around $70.
Mortgage Discharge Fee
If you’re making the choice to change lenders, you’ll be subject to a mortgage discharge fee to “discharge” your mortgage from your current lender. While each lender sets their own fees for this process and rates can vary from province to province, you’ll typically be charged $200 – $350, with some lenders in certain provinces charging much less. If you’re considering changing lenders as part of the refinancing process, look into the fee structure for your specific lender to ensure you have the most current and accurate information when it comes to costs like the mortgage discharge fee.
Should I Still Refinance My Mortgage?
There are a lot of factors to consider before deciding if you should refinance your mortgage. It’s important to ask yourself why you are refinancing in the first place, so you can begin to determine if it’s the best option for your unique circumstance. Always make sure to compare rates from multiple lenders and compare all your refinancing options to ensure you’re moving forward in the right direction.
Don’t be deterred by the potential fees or costs associated with refinancing, as the benefits can far outweigh these costs depending on your unique circumstances and situation.
At the end of the day, the best advice we can give you is to always consult a mortgage professional before you make any big decisions regarding your mortgage. Whether you’re considering renewing or refinancing your mortgage, there are a lot of factors (and costs) to consider before you make your decision and a professional can help ensure you approach it wisely. Get in touch with our team to learn more about your options!