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Refinance a mortgage in Canada 2023

Last Updated: October 23, 2023

What does it mean to refinance?

Whether or not you’ve stopped to consider it, your home is likely one of the largest assets you own. As you build equity in a property by making regular mortgage payments, you can leverage that value by refinancing to access cash.

To refinance, you are breaking your existing mortgage for another mortgage with new borrowing terms. Your lender will use the new mortgage to pay off the old one, so you will have one loan and one monthly payment. It offers a lower cost of financing compared to other borrowing options, such as a credit card or line of credit.

How does a mortgage refinance work?

Refinancing is when you pay off your existing mortgage and replace it with a new mortgage. The new mortgage may have a larger balance, with a different rate, term and/or amortization period. You can opt for a shorter amortization if your income and ability to qualify permit it. The maximum length your amortization can be is 30 years.

It’s important to note that your ability to refinance is based on the built-up equity in your home. You can build equity by paying down your primary mortgage. The more you pay off your principal balance, the more equity you’ll have. You will also build equity if your property value increases. The majority of lenders will typically lend up to 80% of your current property value.

What are the pros and cons of refinancing?

Pros of refinancing

Spend less over the life of your loan

Shortening the loan term or lowering interest rates can reduce the total interest paid over the life of the loan. Refinancing at lower rates can significantly lower your overall interest costs.

Save more each month

Refinancing may lead to lower monthly payments. Lower monthly payments can free up funds for other expenses or investments.

Predictable payments

Switching from an adjustable-rate to a fixed-rate mortgage can make monthly payments more predictable. Fixed-rate mortgages maintain the same interest rate throughout the loan term, reducing payment fluctuations associated with adjustable-rate loans.

Cover expenses

A refinance allows you to borrow against home equity, providing funds for debt consolidation or home improvements. It can be a cost-effective way to access funds for important expenses.

Cons of refinancing

Closing costs

Refinancing typically involves closing costs, including appraisal fees, lawyer/title insurance and other expenses. These upfront costs should be weighed against potential savings over time.

Extending loan term

Extending the loan term when refinancing can result in paying more interest over the long run, even if monthly payments decrease.

Risk of rate increases

If you refinance from a fixed-rate mortgage to an adjustable-rate mortgage, you may experience interest rate fluctuations, which can lead to higher monthly payments in the future.

Loss of current benefits

Refinancing may lead to the loss of certain benefits, such as your rate or potential pre-payment privileges. Also the features of your current mortgage, such as favourable terms or specific protections. Assess the trade-offs carefully.

Impact on your credit score

The refinancing process will involve credit checks, potentially affecting your credit score. Monitor your credit and consider the impact before pursuing a refinance.

Why should I refinance my mortgage?

There are many beneficial reasons to refinance your mortgage, which include:

  • The ability to save on mortgage interest costs 
  • Improve cash flow
  • Consolidate debt
  • Remodel or renovate your home
  • Get a lower interest loan to pay for unexpected bills
  • Or to invest

Regardless of your reasons to get a refinance, it is recommended you consult your mortgage advisor to determine the best option for you.


Refinance to improve cash flow

If cash flow is an issue, you may want to consider lowering your mortgage payment to live with more financial flexibility. Keep in mind that this doesn’t mean you’re saving money in the long run. You could end up paying more interest over time.

If your mortgage is $320,000 at 3% over a 25-year amortization period, your monthly payments would be $1,514. Let’s assume rates don’t change, and ten years have passed. Your payments would still be $1,514, even though the balance of your mortgage has dropped to $260,000. You could refinance into a 30-year amortization mortgage and your monthly mortgage payment would drop to $1,094. That’s an extra $420 in your pocket each month.

Refinance in case of emergency or unplanned expenses

We all know things happen that you didn’t plan for, such as unexpected medical bills, travel expenses, or having to repair or replace a family vehicle. Life moments like these can be expensive, and many people don’t have that money readily available. 

For example, if your home is worth $600,000 and your mortgage is $260,000, you could potentially access up to $220,000 of your home equity. Your mortgage would then increase by the amount you take out, but you’d be able to cover these unexpected costs. You can use our mortgage refinance calculator to figure out how much equity you can access using your own numbers.

Refinance to consolidate your debt

When managing your finances during a refinance, it’s important to understand the difference between paying down your credit and closing it. If you wish to keep access to a specific credit card or credit line after a refinance, it’s essential to communicate this with your mortgage advisor. 

If your monthly expenses decrease due to the absence of other loan or credit payments, you should consider increasing your mortgage payment. This approach allows you to make faster progress in paying off your mortgage while enjoying the simplicity of a single payment and reducing overall interest costs. Finally, if mortgage pre-payment privileges allow, you can adjust these extra mortgage payments as needed throughout the term, providing flexibility in case of cash flow challenges or unexpected emergencies.

Refinance to pay for renovations

A home becomes a major investment when you become a homeowner. Home renovations are also a large part of homeownership, but fortunately, you have options when it comes to getting funding for renovations. One great solution for those who want to make renovations to their homes is to refinance their mortgage. It’s important to note that your ability to refinance will be limited to the built-up equity in your home. Lenders will typically lend you up to 80% of your current property value. For example: 

If you bought a house 10 years ago for $500,000, with a mortgage of $400,000, a 3% mortgage rate and a 25-year amortization, resulting in monthly payments of $1,893. Now your home has appreciated and is now worth $1,150,000 and you have a mortgage balance of $275,000.

You would like to refinance your mortgage and take out $150,000 to do renovations.

Your new mortgage is now $425,000 with a 5.67% mortgage rate and a 30-year amortization, resulting in monthly payments of $2,440.95. This means you now have $150,000 that can go towards any home renovations you might need. You can use our renovation calculator to figure out the costs using your own numbers.

Refinance your mortgage to invest

Some investors use the equity in their homes to invest in the stock market, to buy rental properties and more. We would advise you to consult your accountant or wealth manager to determine what’s right for you. The benefits of using your home to invest allow you to leverage returns using a relatively cheap cost of funds (only if you qualify at a bank or possibly B lender) and enables you to diversify your risk.

When should you refinance your mortgage?

Deciding on when you should refinance your mortgage will depend on your financial situation and the market conditions. It also involves a cost-benefit analysis to determine if a refinance is worthwhile. Costs can include potential penalties for breaking your existing mortgage and legal or closing fees. Benefits can include securing a lower interest rate and consolidating higher interest rate debt. Evaluating the net benefit is important when deciding whether to refinance your mortgage.


Is there a penalty fee if I break my mortgage?

Some lenders will waive the penalty fees if you remain with them but be cautious of higher rates or other costs.

Are there any legal or closing costs?

Some lenders will waive the penalty fees on a refinance with them but be cautious of higher rates or other costs and terms.



How does your current mortgage rate compare to current rates on the market?

Many homeowners refinance to get a lower rate. Be sure to speak to a Perch advisor to ensure you are getting the best deal.

Will consolidating your high-interest debt into one mortgage payment help you pay off more?

Having your debt moved into one simple payment will help you stay on track to paying it off. However, since you will have a higher mortgage amount, speak to your advisor if it is worth it to pay down the mortgage faster to save on longer-term mortgage interest.

Would a refinance benefit you in other aspects of your life?

Some homeowners get a refinance so that they can finally get those home renovations done. Others use it to pay off debt faster, for emergencies, or invest it.

Does your mortgage start over when you refinance?

Yes, you are starting a new mortgage loan when you refinance your mortgage. Your original mortgage will be paid off and you will get a new loan with your current lender or a new one, which will have different terms such as a new mortgage rate or different amortization. 

What can I expect during a mortgage refinance, from start to finish?

It’s best to consult your mortgage advisor and understand how much you will need and how much you can afford. In order to refinance, you will need to break your mortgage, and this involves renegotiating the terms of your mortgage before your renewal and maturity date.

  1. Confirm the costs

When you break your mortgage early, you will most likely incur penalties. Talk to your mortgage advisor or use our mortgage penalty calculator to run different scenarios and get an estimate before confirming with your lender. It’s important to note that this number might change and won’t be finalized until a payout statement is requested.

  1. Determine your options

In this step, you will need to review everything with your mortgage advisor. Your mortgage advisor will help you consider all of your options, including your current lender or with other lenders.

  1. Make an informed decision

It’s important that you follow through with steps 1 and 2 before making a decision. Some lenders will try to get you to stay with them at a higher rate by waiving the penalty fees. Work with your advisor to find a rate that is beneficial for you, as there are options that might be able to cover your penalty and give you a better rate.

  1. Submit a mortgage application

This application process is almost the same as when you purchased your home, however, it is much simpler. All you would need is to provide proof of income and your current property statements.

Your dedicated Perch mortgage advisor can help you through the process. Sign up for a Perch profile to get started today.