Mortgage refinancing is a hot topic for many homeowners, but deciding when it's the right time to refinance can be tricky. Done at the right moment, it can save you thousands. Done at the wrong one, the penalty can wipe out every dollar you were hoping to save.
Here's how to tell the difference.
What refinancing actually means
Refinancing means replacing your current mortgage with a new one — usually before your term is up. You might stay with the same lender or move to a new one. Either way, you get a fresh mortgage with new terms, and sometimes a new amount.
In Canada, you can generally refinance up to 80% of your home's appraised value. If your home is worth $900,000, that's up to $720,000 in total mortgage — minus what you already owe.
Good reasons to refinance
- Rates have dropped since you signed. If today's rates are meaningfully lower than yours, the savings over the rest of your term can outweigh the cost of breaking your mortgage.
- You're carrying high-interest debt. Credit cards, car loans and lines of credit often charge far more than a mortgage. Rolling them into one lower payment can free up hundreds a month.
- You want to renovate. Using your home's equity is usually cheaper than a personal loan or financing through a contractor.
- Life has changed. A separation, a buyout, or wanting to take someone off the title often means refinancing.
- You want a different payment. Stretching your amortization can lower your monthly payment when cash flow is tight.
The part people forget: the penalty
Breaking your mortgage early comes with a prepayment penalty, and it's the single biggest factor in whether refinancing makes sense.
- Variable-rate mortgages usually charge three months' interest.
- Fixed-rate mortgages usually charge the greater of three months' interest or the interest rate differential (IRD). With some lenders, the IRD can run into the tens of thousands.
Add in legal fees, an appraisal and a possible discharge fee, and you need the savings to clearly beat the total cost — not just the rate.
You'll still need to qualify
Refinancing is treated like a new mortgage application. Lenders look at your income, credit and debts, and you'll need to pass the federal mortgage stress test. If your situation has changed since you first bought, it's worth checking where you stand before you count on the savings.
Sometimes waiting is the smarter move
If your renewal is less than a year away, it's often cheaper to wait. At renewal you can switch lenders or change your terms without paying a penalty at all. We start shopping the market four to six months before your renewal date, so you're not stuck signing whatever your lender mails you.
How to know for sure
The honest answer is: it depends on your numbers. We'll look at your current rate, your exact penalty, today's options and what you're trying to achieve — then show you side by side whether refinancing puts you ahead or not. If it doesn't, we'll tell you.
Thinking about refinancing? Book a free 20-minute call or call us at (778) 233-2377. You can also chat with our AI assistant any time.