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Insights & advice

How to refinance your mortgage

August 2022 – 15 min read

Key takeaways

  • Lowering your borrowing costs and/or using home equity are the benefits of mortgage refinancing

  • The process to refinance is similar to applying for your original mortgage

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What is a mortgage refinance?

Refinancing a mortgage means paying off your current mortgage by replacing it with another mortgage. 

The benefits of refinancing

  • Reduce your payment – If interest rates drop significantly, refinancing could lower your payments or help you pay down your mortgage faster.

  • Use home equity – If you’ve paid down part of your mortgage already, you can use that home equity to:

    • Pay for home upgrades
    • Buy more property
    • Contribute to other financial goals
    • Help lower the cost of borrowing and pay off higher interest rate debt (e.g., credit cards)

How does a refinance work?

Mortgage refinancing is breaking your original mortgage contract and replacing it with another. 

Unless you’re blending your current rate with a new rate and extending your term, or unless you have an open mortgage, it’s best to refinance at the end of your mortgage term to avoid a prepayment penalty. 

Current regulations allow homeowners to borrow up to 95% of the appraised value of their home with default insurance, or up to 80% without default insurance.

Let’s say your home is worth $450,000, and you’ve been paying down your mortgage for some time, so you only have a balance of $100,000 left.

In this example, 80% of the value of your home would be $360,000 and because you still have $100,000 left to pay, you can access about $260,000 in equity.

What you need to do to refinance your mortgage

  • Decide how much money you need
  • Discuss your options with your advisor and/or credit planning consultant
  • If a mortgage refinance is your best option, meet with your credit planning consultant to complete an application
  • Your credit planning consultant will arrange for a home appraisal
  • You’ll need a proof of income (pay stub and a letter from your employer), your credit information (a list of assets and liabilities) and a credit check
  • Your application will need to pass a mortgage stress test
  • Because refinancing is like applying for your original mortgage, it should take about the same amount of time to know if your refinance is approved.
  • Once you get approved, read the terms and conditions, and if you don’t understand something, ask for more explanation

What’s next?

Now that you understand more about mortgage refinancing, you may want to contact your advisor or be referred to a credit planning consultant to:

  • Determine the best way to use your home equity to meet your financial goals

  • Discuss whether mortgage refinancing is the best option for your situation

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The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.