Anytime you replace your current mortgage with a new one you are refinancing. This is not to be confused with switching your mortgage, which is when you are simply transferring your existing mortgage balance to a new lender, while keeping your remaining amortization intact.
What’s the difference?
Switching involves keeping your mortgage balance and remaining amortization the same. Refinancing involves increasing your mortgage amount and/or increasing your amortization period.
Mortgage refinancing can be a great option for anyone looking to access the equity in their home, as this can be one of the most cost-effective ways to access your home’s equity. It can be done at any time, regardless of whether you are in the middle or at the end of your term.
WHY DO PEOPLE REFINANCE THEIR MORTGAGE?
There are a number of reasons why someone would want to refinance their mortgage, and in many cases, refinancing can be the best and most economical option for them.
Most of the reasons below involve taking equity out of the home:
Have you been dreaming about putting in a dream kitchen or bathroom?
Finishing your basement to include the ultimate entertainment area with a bar and pool table? Or maybe you want to put a pool in the backyard?
Refinancing is often the best and easiest way to get the money you need to make your renovation dreams a reality.
Sometimes debt can get out of control. I get it, and I’ve even been there before myself. It’s not fun having a heavy debt load. All those high interest credit cards eat into your disposable income each month, which can negatively affect the quality of your life.
Refinancing can get you out of this mess. A word of caution here. If you refinance your home to consolidate debt, make sure you have a plan to ensure that you don’t get yourself back into the same situation. Having a list of credit cards with a zero balance on all of them can be tempting for some. You may want to consider lowering your credit card limits if you need to. I can’t stress the importance of keeping your credit under control enough.
Whatever you do, don’t close all your credit cards! You’ll need to keep at least two of them open to maintain healthy credit.
Combine multiple mortgage components into one
If you have a mortgage with multiple components such as a fixed / variable hybrid, or a mortgage with a Home Equity Line of Credit (HELOC) attached, then you may want to consider consolidating them into one. Rates for HELOCs are super expensive compared with regular mortgage rates. If you have a large HELOC balance, it might be worth considering refinancing to consolidate everything into a single mortgage. The savings can be into the thousands!
The lowest 5 year fixed rate on a refinance as of today is 2.59%. The rate on most HELOCs is prime +0.50% (4.45%).
Access money for any reason
There are many reasons why someone might need additional funds. Maybe you want to buy a new business, a new car, put your kids through university, or take that vacation you have always been dreaming about. Or perhaps there is a big investment opportunity you want to take advantage of.
THE MORTGAGE REFINANCING PROCESS
The process is very similar to the mortgage approval process when purchasing, just with a bit less documentation. Once we have your application in hand and you have chosen which lender and rate option you would like to move forward with, we’ll then submit your file through for approval. This can take anywhere from a few hours to over a week, however in most cases, we get a response back from the lender within 24-48 hours.
Once the lender has accepted all the conditions, they will then send out instructions to either your lawyer or the title insurance company handling the legal work.
Once you sign with the legal entity, all the work is complete and you can usually have your money within a day or two.
How long does refinancing take?
Refinancing can take anywhere from a couple weeks to a month to complete, depending on your situation.
HOW MUCH DOES MORTGAGE REFINANCING COST?
When refinancing, you are essentially discharging your previous mortgage and replacing it with a new mortgage charge (registration). This requires a legal and appraisal fee, in addition to the discharge fee from your current lender. The appraisal fee is usually around $300, however this can be higher depending on the value and location of your home.
You have the option of registering the new mortgage through a lawyer or a title insurance company such as First Canadian Title or FNF Canada. If you are not in a rush and are okay with the process taking up to a month, then legal fees can range from $500 to $900, depending on which province you are in. If the lender has an in-house legal department, which is the case with many banks and credit unions, then this can help to bring your legal costs down as well. Usually around $500 or so. Note that the lender title insurance is generally included in this fee.
If you need the money sooner than later, then you’ll need to go through a lawyer, which will usually cost between $1,000 – $1,500. If the lawyer needs to do any additional work, such as add or remove someone from title, or to pay out an excessive number of creditors, then there may be additional costs.
You’ll want to check with your lawyer first to ensure that they are able to close the new mortgage this quickly for you. Real estate lawyers can get pretty busy at times, so make sure you check their availability.
There are some lenders will cover all of these fees for you, providing you are not closing through a lawyer. It’s best to reach out to a mortgage professional to discuss your options, as there may be lower rates available if you cover the costs yourself.
Adding refinancing fees to the mortgage
The legal and discharge fees can be included in the new mortgage. The appraisal will generally need to be paid up front however.
REFINANCING TO GET A LOWER MORTGAGE RATE
This can be one of the most common reasons why people look to refinancing, however if your only objective is to get a lower rate, then refinancing is not necessarily the best option. If you want to stay with the same lender, then you’ll need to refinance, however if you are open to switch lenders, then lower rates will likely be available.
If you are switching lenders without refinancing, you can include up to $3,000 of your mortgage penalty into the new mortgage. The legal and appraisal fees are usually paid for you, providing that you are not in a collateral mortgage*. The discharge fee, which is usually around $300-$400 in Ontario will get added to your new mortgage amount. In BC, the discharge fee is usually around $75, or in Alberta, there is no discharge fee at all.
ARE RATES HIGHER FOR REFINANCING?
Rates for refinancing are often a bit higher than they would be if you were purchasing or simply switching your mortgage. This can be anywhere from no increase in rate at all, to as much as 0.25% higher. Every situation can be a bit different, so it’s best to reach out to us to find out what your exact options are.
WHAT IF YOU DON’T QUALIFY FOR REFINANCING
If you don’t qualify, then there still may be options available to you. Providing you have enough equity in your home, there are lenders out there for all situations. Rates and costs can be significantly higher, depending on how challenging your situation is. It’s best to reach out to us so we can review your file and we’ll let you know exactly what options are available to you.
*There are two ways in which a lender can register a mortgage. A standard charge or a collateral charge. With a standard charge, the only cost to switch your mortgage is the discharge fee from your current lender. With a collateral charge, there are also third party costs of around $1,100. TD, National Bank and Tangerine register all their mortgages as a collateral charge. Any mortgage that contains a second component such as a HELOC will also be a collateral charge, regardless of lender.