When to Refinance a Mortgage

Although you’ll need to break your existing mortgage and pay prepayment fees, refinancing can unlock numerous benefits. You could lower your overall mortgage costs, consolidate debt, or get access to money for home renovations or other large expenses.

But maximizing the benefits of a mortgage refinance is often a matter of timing.

When a mortgage refinance makes sense

You meet all the eligibility conditions. Since refinancing is similar to getting a new mortgage, you will need to:

Mortgage rates have declined sufficiently. It typically only makes sense to refinance when interest rates have dropped by a significant degree since you took out your current mortgage. Rates need to have dropped enough that they outweigh the fees and prepayment penalties you'll face when refinancing.

You have a financial goal in mind. Refinancing is most beneficial when the cash you access is put toward strengthening your household finances. Using refinance funds to eliminate high-interest debt, invest in a second property or pay for higher education can have positive, long-term effects.

You can't afford your current mortgage payment. If your mortgage has become unmanageable, you can refinance to extend your amortization period. Paying off your mortgage over a longer period of time will result in lower payments and provide near-term relief, but you'll pay more in interest overall.

Ready to refinance?

Compare current mortgage refinance rates from Canadian lenders to ensure you're getting the best deal when accessing your home equity.

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How to decide if now is a good time to refinance your mortgage

Crunch the numbers

With the help of a mortgage professional, calculate the immediate costs of a mortgage refinance, which could include:

Weigh those costs against how much refinancing will lower the overall cost of your mortgage. If the numbers are in your favour, refinancing might be the way to go.

Check your credit

Since a mortgage refinance is a new loan, lenders will check your credit score and credit history before approving your application. The higher your credit score, the more likely you’ll be approved at a competitive interest rate.

If your credit score has slipped, or you've taken on additional debt during your mortgage term, the rate you're offered on your refinance might make it too expensive, or too risky, for you to follow through.

Consider alternatives

Compare the risks, benefits and costs of a mortgage refinance to those of home equity loans and home equity lines of credit to find out whether a refinance is the best overall option.