How Much Will it Cost to Refinance My Mortgage?
Mortgage refinancing gives you the opportunity to change the features of your mortgage, which can be a costly process. While the costs associated with refinancing may not be worth it for everyone, they give you flexibility to adjust your mortgage to better fit your needs. Let’s take a look at the costs associated with refinancing a mortgage.
What is a mortgage refinancing?
When you refinance a mortgage, you break your current mortgage and start a new one. In doing so, you can change the form and features of your mortgage to suit your current needs. You can borrow more from your mortgage (assuming you have home equity to spare), increase your amortization period, as well as add additional features like a home equity line of credit.
Some changes require renewing at the end of your term; others require a complete refinance.
Exactly how much can I refinance my mortgage?
You can use refinancing to consolidate your debts, renovate your home, or finance post-secondary education for your children. In Canada, you can refinance your mortgage up to a 80% loan-to-value ratio. Loan to value is the total mortgage amount divided by the home value.
Let’s say your home is worth $950,000 and you have $400,000 left to pay on it.
Current mortgage: $400,000
Home value: $950,000
We take the mortgage amount and divide it by the current home value, we get a loan-to-value ratio of 42%. If you want to borrow money from your home, you can borrow up to 90% of the home value as stated above.
Using the above example, let’s first figure out how much you could potentially borrow in a refinance.
Maximum mortgage: $950,000 * 80% = $760,000
Then, we’ll take that amount and subtract the balance of your mortgage to figure out how much more you can borrow.
While refinancing can be a cost-effective way to borrow money, it’s important to understand all of the costs involved. To determine if refinancing is the smartest choice, you must consider the best mortgage rates you can get and other costs involved and compare this to other financing options such as a line of credit.
How much can you borrow?: $760,000 – $400,000 = $360,000
What fees will I have to pay when refinancing my mortgage?
When refinancing your mortgage, you may need to pay several different fees depending on the circumstances of your loan. Here are some of those fees and what they cover.
What is the penalty for breaking your mortgage early?
If you are refinancing your mortgage, and end up having to pay a prepayment penalty, you will be required to compensate your lender for breaking the contract early. Depending on the size, term, and features of your mortgage contract, this penalty can vary greatly.
The way your prepayment penalty is calculated depends on your mortgage’s rate type. If you have a fixed-rate mortgage, your prepayment penalty will be higher if you make an early withdrawal. If you have a variable rate mortgage, your penalty will be higher if you make an early withdrawal.
If you refinance your mortgage with your current lender, you may be able to avoid a breakage penalty. Some mortgage providers will give you the option to leave your existing mortgage at the current rate you are paying and add the additional mortgage amount at a new rate. It is important to ensure that you are getting a good deal. If it is higher than current mortgage rates, it may not be worth saving on the breakage penalty.
What is a mortgage discharge fee?
When refinancing your mortgage, you’ll need to pay a fee in order to discharge (transfer) your current mortgage from your previous lender. The amount of this fee varies by province and lender, but it is usually between $200 and $350.
Will I have to pay an appraisal and inspection fee?
When you refinance your home, most lenders will require a new appraisal to be performed on the property to determine how much of a loan you can afford. The average cost of an appraisal is between $300 and $500. This fee must be paid up-front.
If you bought your home recently and already have an appraisal on file, your lender may waive this fee. However, if you think your home value has increased since the last appraisal was conducted, it could be a good idea to get another one done.
What is a mortgage registration fee?
When you refinance your mortgage, you’ll have to pay a registration fee. This is because part of the refinance process involves removing your current mortgage amount from the title on your property and re-registering it with a new mortgage amount. The provincial government sets the cost of this registration fee, which is usually around $70.
Will I have to pay any legal fees?
Yes. When you refinance your house, you’ll need to consult with a real estate lawyer. Your lawyer will review the terms and conditions of your mortgage loan, register the new mortgage with the county recorder’s office, and conduct a title search to make sure that no liens have been made against your property.
It’s the lawyer’s job to facilitate the entire financial transaction between you and the lender. Legal fees for a refinance typically range between $700 and $1,000. If you’re switching lenders, and your mortgage balance is greater than $200,000, your new lender may pay for your legal fees.
The 411 on the cost of refinancing your mortgage
Before refinancing your mortgage, it’s important to do your research. Make sure you compare rates from multiple lenders and compare refinance offers.
Reach out to me today and I will run the numbers and get you the actual cost of refinancing your mortgage with mortgage rate deals currently available. I will make the process and experience simple and easy for you to decide if a mortgage refinance is right for you.
How can Ahmad, mortgage specialist at AskAhmad.ca and the Total Mortgage Source 360 Team help you?
Ahmad and his team are industry experts on mortgages. They offer excellent customer service and pride themselves on their ability to help you find the right mortgage product for your needs.
We can offer you some of the most competitive interest rates and mortgage products available because we have access to Canada’s leading lenders, including banks, mortgage firms, trust companies and private lenders.
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Ahmad El-Farram, Mortgage Agent #M21005249
The Mortgage Centre at Total Mortgage Source 360
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