Refinance, renewal, and switch are three different things
A renewal continues the same balance with a new term at maturity. A switch moves that same balance to a new lender, usually at renewal, with little or no cost. A refinance changes the amount, the amortization, or both, and requires a new approval, a new appraisal, and new legal registration.
The 80 percent rule
Refinances cannot be insured in Canada, so lenders cap them at 80 percent of appraised value. Value times 0.80, minus your current balance, is your maximum equity take-out before costs.
- $900,000 value, $500,000 owing: about $220,000 available
- $1,200,000 value, $600,000 owing: about $360,000 available
- $1,600,000 value, $1,100,000 owing: about $180,000 available
What it costs
Budget for an appraisal, legal fees to discharge the old mortgage and register the new one, a lender discharge fee, and any prepayment penalty. Some lenders offer cash-back or cover the legal cost on a switch. Net proceeds, not the gross approval, is the number that matters.
Qualifying
A bank refinance means requalifying, including the stress test at the qualifying rate. Alternative lenders are more flexible on self-employed income and bruised credit at a modest premium, and private lenders will refinance on equity alone when speed or credit rules out the other two tiers.
Timelines
Two to four weeks is typical for a bank refinance in Toronto once the appraisal is booked and the lawyer is instructed. Alternative and private files can move considerably faster when a deadline is driving the deal.
Frequently asked questions
- How often can I refinance?
- There is no legal limit. The practical limits are the penalty for breaking your current term and the closing costs, which need to be justified each time.
- Does refinancing hurt my credit?
- There is a credit inquiry and a new account, so a small short-term dip is normal. Consolidating revolving balances to zero usually improves the score within a few months.