What does refinancing a mortgage really cost and is it worth it?

Refinancing can be a great way to save money on your mortgage payments or get better terms on your loan. Many Canadians are hesitant to refinance because they believe that it will cost them money.

So, does refinancing cost money?

Refinancing your mortgage can help you save money on your payments, but it can also involve some upfront costs. The different fees associated with refinancing include legal fees, appraisal fees, and mortgage penalties. While these costs can seem like a lot, they can be outweighed by the potential savings on your mortgage payments. Ultimately, whether or not refinancing is a smart financial decision for you will depend on your individual circumstances and the terms of your existing mortgage and other debts.

First, let’s define what we mean by mortgage refinancing. Refinancing is the process of replacing an existing mortgage with a new one, and not to be confused with switching lenders. To qualify as a refinance the mortgage amount must increase, the amortization change, or both. If you are not changing the amount or amortization then that is considered a switch and the fees below may not apply.

Now, let’s look at the costs associated with refinancing. In Canada, refinancing typically involves three types of fees: legal fees, appraisal fees, and mortgage penalties.

Legal Fees – What You Need to Know

Legal fees are the fees charged by a lawyer or notary to prepare and register the mortgage documents. These fees can vary depending on the complexity of the transaction, but they typically range from $900 to $1,500 or more.

Appraisal Fees for Refinancing

Appraisal fees are the fees charged by a professional appraiser to assess the value of the property. This is usually required by the lender to ensure that the property is worth enough to support the new mortgage. Appraisal fees typically range from $300 to $500.

Mortgage Penalties

Mortgage penalties are the fees charged by the lender if you break your existing mortgage before the end of the term. These penalties can be significant and can range from three months’ interest to a percentage of the outstanding balance. It’s important to understand your existing mortgage terms and the penalties associated with breaking it before deciding to refinance.

So, while refinancing does involve some costs, these costs can be outweighed by the potential savings on your mortgage payments. For example, if you’re able to refinance to a lower interest rate, you could potentially save thousands of dollars over the life of your mortgage. If higher-interest debt is also rolled into the new mortgage the savings could be far greater.

Refinancing does cost money upfront, but it can also save you money in the long run. It’s important to understand the costs associated with refinancing and to weigh them against the potential savings on your mortgage and other loan payments. With careful consideration, refinancing can be a smart financial decision.

A mortgage broker will be able to help calculate the potential savings associated with refinancing.

For more information on refinancing your mortgage, and if it is worth it, call 416-912-6200.