When Is the Right Time to Refinance Your Mortgage?

If you're a Canadian homeowner, refinancing your mortgage can be a smart way to lower your monthly payments, access home equity, consolidate debt, or even become mortgage-free sooner. But timing matters. Knowing when to refinance — and when it might cost you more than it saves — can make all the difference.

Key Takeaways

• What is a mortgage refinance?
• Top 5 reasons to refinance
• Things to consider before refinancing
• Alternative options to a refinance

What Does It Mean to Refinance a Mortgage in Canada?

Refinancing means breaking your current mortgage and replacing it with a new one, often with a different interest rate, term, or lender. Because the process of refinancing involves paying off your mortgage ahead of schedule, there will typically be prepayment penalties or fees, so it's important to understand what you're committing to before making the move.

Top 5 Reasons to Refinance Your Mortgage

Canadian homeowners refinance their mortgages for many purposes. Let’s look at some of the most common reasons and details behind them.

1. Interest Rates Have Dropped	1. Interest Rates Have Dropped If today's rates are lower than the rate on your current mortgage, refinancing could help you lock in a better deal. A lower interest rate can reduce your monthly payments and save you thousands in interest over time. Quick Note: Most experts recommend refinancing if current rates are at least 1 to 2 percentage points below our existing mortgage’s interest rate. We’ll discuss more financial considerations to look at later in the blog to help you determine if a refinance is a smart financial decision.
2. You Want to Access Your Home Equity	2. You Want to Access Your Home Equity Many Canadians use a cash-out refinance to access the equity they've built in their home. These funds can be used for home renovations, education expenses, or to consolidate higher-interest debt. How A Cash-Out Refinance Works A cash-out refinance is a method of accessing the equity in your home by replacing the existing mortgage with a new, larger mortgage. The new mortgage pays off the old mortgage loan, and the additional funds are paid out as cash to the homeowner. You will need at least 20% equity in your home for a cash-out refinance. Let’s look at an example of a cash-out refinance for a home with a value of $700,000. Old Mortgage Loan Amount: $200,000 New Mortgage Loan Amount: $300,000 $200,000 pays off old mortgage $100,000 lump sum to homeowner
3. You Want to Change Your Mortgage Term or Type	3. You Want to Change Your Mortgage Term or Type Refinancing lets you switch from an adjustable rate to a fixed-rate mortgage, or vice versa. It can also give you the option to adjust your amortization period, the length it will take to pay off your mortgage, either shortening it to become mortgage-free faster or extending it to lower your payments.
4. You’re Consolidating Debt	4. You’re Consolidating Debt If you have high-interest debt like credit cards or personal loans, refinancing your mortgage and accessing your equity to consolidate that debt at a lower interest rate could help improve your financial situation. Just be sure you're not stretching your mortgage term unnecessarily and that you keep on track to remain debt-free.
5. Your Financial Situation Has Improved	5. Your Financial Situation Has Improved Have you built a stronger credit profile or increased your income since you got your mortgage? If so, you may now qualify for better terms, making it a good time to explore refinancing options.

What to Consider Before Refinancing

Refinancing may be a wise financial move for homeowners depending on their situation. But there are some things you’ll want to consider before deciding if it’s the right decision for you.

• Prepayment Penalties: Lenders typically charge a prepayment penalty if you break your mortgage before the end of your term. This could be a few thousand dollars, depending on your lender and remaining term. If you opt to refinance your mortgage closer to the end of your mortgage term, you’ll usually pay less in prepayment penalties.
• Legal and Appraisal Fees: Because refinancing is essentially getting a new mortgage, it comes with some administrative costs, like legal fees and possibly a new property appraisal. If you’re switching lenders, a discharge fee will also apply.
• Stress Test Requirements: Even if you're refinancing with your current lender, you may still need to pass the mortgage stress test, especially if you're increasing your loan amount.

Mortgage Refinance Alternatives to Consider

Refinancing your mortgage is one way to use your home and your equity to reach your goals, but it’s not the only way. Homeowners may also consider a Home Equity Line of Credit (HELOC) or a second mortgage, depending on their needs. Compare your options to make an informed decision.

Is Now the Right Time for You to Refinance?

There are many factors to consider before deciding if a refinance is right for you. The right time to refinance depends on your goals — whether that’s saving on interest, freeing up cash flow, or accessing equity.

Speaking with a professional can help you understand your options, calculate your potential savings, and navigate any penalties or fees. If you’re an MCAP homeowner, reach out to our team and we’d be happy to discuss your options. If you’re considering MCAP for your mortgage refinance feel free to reach out to a licensed mortgage broker for more information.