The big one: the prepayment penalty
If you are breaking a term early, the penalty dominates: three months of interest on a variable, or the interest rate differential on a fixed. On a large Toronto mortgage broken mid-term with rates lower than when you signed, this can reach five figures. Get the written payout figure before anything else.
The professional fees
Legal fees for discharging the old mortgage and registering the new one typically run a thousand to two thousand dollars. The appraisal runs a few hundred. Title insurance, usually required, a few hundred more. Some lenders cover appraisal and legal on straight switches, which is worth thousands and worth asking about first.
- Legal: discharge and registration, roughly a thousand to two thousand
- Appraisal: a few hundred, sometimes lender-paid
- Discharge fee from the old lender, a few hundred
Fees that should not be there
On prime mortgages, lender fees are unusual. Alternative and private refinances legitimately carry lender and broker fees, typically one to three percent, which should be disclosed in writing before you commit. Any fee you cannot get in writing is a fee you should not pay.
The break-even test
Add every cost, then divide by the monthly savings to find your break-even point in months. If you break even in eighteen months and the new term is sixty, the refinance is comfortably ahead. If break-even lands after you planned to sell, it is not. Ten minutes of arithmetic settles most refinance debates.
Frequently asked questions
- Can the costs be rolled into the new mortgage?
- Usually yes. Penalties and fees can typically be added to the new balance, which preserves cash but slightly increases the interest cost. For most borrowers it is the practical choice.
- Are refinance costs tax deductible?
- On rental or business property, generally yes. On your home, no. Confirm with your accountant.
- Is refinancing at renewal cheaper?
- Yes. At maturity there is no penalty, so the costs drop to legal, appraisal, and discharge, and lenders often cover those on switches.