Remortgaging, more commonly known as refinancing, is a financial strategy that allows Canadian homeowners to replace their existing mortgage with a new one. Typically, homeowners refinance to obtain a better interest rate, extend amortization or increase the loan amount.

Remortgaging in Canada offers a range of benefits. Whether you’re aiming to capitalize on lower interest rates, adjust your payment structure, or tap into your home equity, this financial strategy can align your mortgage with your current financial goals.

Key Takeaways

• Remortgaging can reduce your monthly mortgage payment by securing a better rate or extending your amortization.
• Homeowners can access home equity to fund renovations, tuition, debt consolidation, or other purposes.
• Costs like prepayment penalties and legal fees should be factored into your decision.

What Is a Remortgage in Canada?

A remortgage is a refinance, paying off your current mortgage and obtaining a new one, either with your current lender or a different one. In Canada, it is typically referred to as a refinance, with the term “remortgage” less commonly used. Remortgaging can be done at any point during your mortgage term. However, you must pay prepayment penalties if you refinance at any point that isn’t at the end of your term. 

How Does Mortgage Refinancing Work?

Remortgaging involves breaking your current mortgage and replacing it with a new one. Depending on your needs and financial situation, you may remortgage for a lower rate, increase the amortization or loan amount, or access your home equity. When you remortgage, your current or new lender will pay off the existing mortgage and replace it with another one or register a new one against your property. 

If you break your mortgage before the end of the term, you will likely pay prepayment penalties. The amount will depend on your mortgage type (fixed or variable), the time remaining on the term, prevailing interest rates, outstanding balance, and your lender’s prepayment calculation policies. 

Why Homeowners Remortgage

You can borrow up to 80% of your home’s value when remortgaging, so you need at least 20% equity in your property before you can remortgage and access funds. Typically, homeowners remortgage for reasons that include:

• Secure a lower interest rate
• Increase the amortization period
• Change from a fixed to a variable rate
• Consolidate high-interest debt
• Renovate
• Cover tuition or other education costs

Benefits of Remortgaging

1. Lower Your Interest Rate

If mortgage rates have dropped since you locked in your current rate, you may qualify for a better rate, reducing your monthly payment and total interest cost. For example, remortgaging a $400,000 mortgage from 5.49% to 4.79% could reduce your monthly payment by $160, saving thousands (more than $9,600) in interest over your 5-year mortgage term on a 25-year amortization.

2. Access Your Home Equity

A remortgage lets you borrow up to 80% of your home’s appraised value minus your current mortgage balance. Accessing your home equity is commonly more affordable than other loan options, such as second mortgages.

3. Consolidate Debt

Remortgaging can simplify your finances by rolling high-interest debt (like credit cards or personal loans) into your mortgage, often at a much lower interest rate. While stretching these repayments over a longer amortization may cost more interest, it does free up some cash flow, allowing you to meet multiple financial obligations.

4. Change Your Amortization

A remortgage to increase the amortization can lower your mortgage payments and free up cash flow. Decreasing the amortization can help you pay off your mortgage faster and save on interest-carrying costs. However, this doesn’t require you to remortgage, as your lender will allow you to increase your mortgage payment as outlined within your terms and conditions, thus decreasing your remaining amortization.

Costs of Remortgaging in Canada

While remortgaging can offer long-term savings, it’s important to consider the short-term costs that could negate any savings you might realize. 

Typical costs include:

• Prepayment penalties (if breaking your mortgage early)
• Appraisal fees 
• Legal fees
• Discharge fees 
• Title insurance or registration fees

Alternatives to Remortgaging

If remortgaging isn’t right for you or the costs are higher than the savings, consider these other options to access funds or adjust your mortgage.

HELOC (Home Equity Line of Credit)

A HELOC works like a line of credit using the equity in your home as collateral. This allows you to access funds as needed using a collateral charge to set up a secured line of credit without breaking your mortgage. Unlike loans, a HELOC allows you to use funds as needed and only pay interest on the amount you withdraw. However, depending on how your current mortgage is registered, there may be additional fees and costs to register a new mortgage charge.

Second Mortgage

A second mortgage is a loan taken out on an already mortgaged property using the equity in your home as collateral. Interest rates are typically higher since the risks for a mortgage in the second position are higher. This type of mortgage is typically best suited for shorter timelines, and you’ll need authorization from your lender that holds the first mortgage. 

However, the setup and discharge of this second mortgage will be costly, as you’ll need to discharge or postpone it to avoid a costly refinance when your first mortgage matures.

Blended Mortgages

Blended mortgages allow you to combine your current interest rate with a lower rate, extend the term, and increase your mortgage amount while avoiding prepayment penalties. 

Blend and Extend

Blend and extend means your lender mixes your current mortgage rate with a new, lower rate and gives you a new term based on the lower rate. You get to lock in a better rate for longer without breaking your current mortgage or paying a penalty. 

For example, if you owe $300,000 on a 5-year mortgage with 2 years left at 4.50%, and current 5-year rates are 3.50%, your new blended rate could be about 3.90%, and your term would restart for another 5 years.

Blend to Term

Blend to term lets you keep the exact end date for your mortgage while getting a lower, blended rate for the remaining two years. This option is good if you want to take advantage of lower rates but don’t want to extend your mortgage. For instance, if you have two years left on a 5-year mortgage at 4.50% and current rates are 3.50%, your new rate might be around 4% for the remaining two years.

Blend and Increase

Blend and increase allows you to borrow more money by increasing your mortgage balance while combining your current rate with a lower one. You can choose to keep your current term or extend it. This is an excellent option if you want to access the equity in your home without refinancing or paying a penalty. 

For example, if you have 2 years left on a $400,000 mortgage at 5% and want to add $100,000, with current rates at 4%, your new blended rate could be 4.32% if you extend the term or 4.80% if you don’t.RM). One challenge in utilizing this choice is that financial institutions that provide hybrid mortgages typically do not offer competitive rates compared to other lenders. 
If interest rates remain unchanged and the outlook for rates to decrease changes, assessing the overall risk between choosing fixed and variable options is advisable. For individuals who have considerable home equity, net worth, and available cash flow, selecting an adjustable-rate (ARM) may be suitable. For first-time homebuyers (FTHB), it’s best to opt for a fixed rate to avoid significant increases in monthly mortgage payments should interest rates stay higher for longer or change course and increase again.

Frequently Asked Questions

Final Thoughts 

Remortgaging can offer substantial benefits, from lowering your rate to accessing equity. However, the key to making it work in your favour is understanding the costs involved, timing it right, and choosing the best mortgage strategy for your goals.

Are you looking to lower your rate, consolidate debt, or access equity? Contact a mortgage professional today to explore your remortgage options.