When and How to Refinance Your Mortgage

Refinancing can save you thousands or help you access your home’s equity. Here’s everything you need to know.

When to Consider Refinancing

Interest Rate Savings

• Rule of thumb: 0.5% or more reduction typically justifies refinancing
• Consider remaining term and break penalties
• Calculate total savings over remaining amortization

Accessing Home Equity

• Up to 80% of home value (minus existing mortgage)
• Use for renovations, investments, or debt consolidation
• Often better rates than personal loans or credit lines

Changing Your Mortgage Terms

• Switch from variable to fixed (or vice versa)
• Extend or reduce amortization period
• Remove or add someone from the mortgage

Types of Refinancing

Rate and Term Refinance

• Change interest rate or mortgage term
• No additional funds received
• Focus on reducing monthly payments or total interest

Cash-Out Refinance

• Borrow against home equity
• Receive lump sum at closing
• Higher mortgage balance but access to funds

Switch/Transfer

• Move to new lender at renewal
• No penalty if done at maturity
• Often includes cash back or rate discounts

The Refinancing Process

Step 1: Evaluate Your Situation

• Current mortgage details (rate, term, balance)
• Home’s current market value
• Your financial goals and needs
• Credit score and income verification

Step 2: Calculate Costs vs. Benefits

• Break penalty (if before maturity)
• Legal fees ($1,000-$2,000)
• Appraisal fee ($300-$500)
• Title insurance ($200-$400)

Step 3: Shop for Rates

• Compare multiple lenders
• Consider both rate and terms
• Look at total cost over full term

Step 4: Application and Approval

• Income and employment verification
• Updated home appraisal
• Credit check and debt verification
• Final approval and rate confirmation

Break Penalty Calculations

Fixed Rate Mortgages

Interest Rate Differential (IRD) or 3 months interest (whichever is higher)

• IRD = (Current Rate - Comparable Rate) × Remaining Balance × Remaining Term

Variable Rate Mortgages

3 months interest penalty

• Generally lower penalties than fixed rates
• Calculated on current balance

Refinancing Strategies

Debt Consolidation

• Pay off high-interest debt with mortgage funds
• Significant interest savings potential
• Requires discipline to avoid re-accumulating debt

Investment Property Purchase

• Use equity for down payment on rental property
• Tax advantages of mortgage interest on investment
• Consider cash flow and market conditions

Home Renovations

• Often better than personal loans or credit lines
• Renovations can increase home value
• Consider permits and contractor reliability

When NOT to Refinance

Close to Mortgage Maturity

• Wait for natural renewal if less than 6 months remaining
• Avoid unnecessary penalties and fees

Unstable Income

• Refinancing requires income verification
• Job changes can complicate approval process

Declining Property Values

• May not qualify for desired loan amount
• Consider waiting for market recovery

High Break Penalties

• Calculate if savings exceed penalty costs
• Consider timing refinance closer to renewal

Tax Implications

Principal Residence

• Mortgage interest generally not tax deductible
• Exception: funds used for investment purposes

Investment Properties

• Mortgage interest typically tax deductible
• Keep detailed records of fund usage

Smith Manoeuvre

• Convert non-deductible mortgage interest to deductible
• Complex strategy requiring professional advice

Working with a Mortgage Professional

What We Provide

• Penalty calculations and cost analysis
• Rate comparison across multiple lenders
• Strategy recommendations based on your goals
• Application management and advocacy

Questions to Ask

• What are my current penalty costs?
• How much equity can I access?
• What rates and terms are available?
• What’s the total cost comparison?

Ready to Explore Refinancing?

Contact me for a no-obligation consultation where we’ll:

• Review your current mortgage situation
• Calculate potential savings or equity access
• Compare options from multiple lenders
• Create a refinancing strategy that meets your goals

Every situation is unique. Professional advice ensures you make the best decision for your circumstances.