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Mortgage Refinancing: Know Your Costs

Mortgage Refinancing Krishna Menon 25 May

One of the biggest reasons that most homeowner consider refinancing is simply to get a lower interest rate. The second is to gain access to their home equity. Although refinancing your home can be a great financial decision it’s not for everyone. You need to know the costs associated with it to ensure it’s right for you.

If you do decide to refinance you’ll be able to access up to 80 percent of the value of your home, minus whatever outstanding balance you may have on your existing mortgage.
Refinancing Options
When it comes to refinancing options you have two options to choose from:

1. Refinancing within your term – to access a lower mortgage rate or gain access to your home’s equity
2. Refinancing at the end of your term – access equity only, since you’re already get a lower interest rate

Regardless of the option you choose, there are many fees that will come up throughout the refinancing process.

Let’s discuss potential fees that you might have to pay in certain circumstances.
Potential Fees
If you’re refinancing within your term and switching lenders at the same time, here are a few costs that you can be facing:

● Mortgage prepayment penalty
● Discharge fees
● Registration fees for your mortgage
● Legal fees (standard mortgages or collateral mortgages)

If you’re refinancing within your term, but staying with the same lender then only a mortgage prepayment penalty, registration fees and standard mortgage legal fees would apply.

When refinancing at the end of your term and leaving your current lender, here are the costs you could be expecting to pay:

● Mortgage discharge fee
● Registration fee
● Legal fees (standard mortgages or collateral mortgages)

When remaining with the same lender, you’d only have to pay the registration fee and legal fees for a standard mortgage.

So, as you can see refinancing at the end of your term is the best option if you want to avoid any prepayment penalties.

Now, let’s break it down by fee to give you a better understanding of each on individually.
Mortgage Prepayment Penalties
Going with a refinancing option that requires you to break your mortgage within your term? You will pay a prepayment penalty, along with the other fees described above. However, be prepared to pay either three months’ interest or the interest rate differential (IRD), whichever is greater, if you have a fixed-rate mortgage. With variable-rate mortgages you’d just pay three months’ interest.
Discharge Fees
To switch lenders and discharge from your current lender, you’ll be required to pay a fee. These rate can vary depending on your province and the lender themself. You could be looking at paying a minimum of $200, up to a maximum of $350.
Registration Fees
You’ll have to pay registration fees no matter what, whether you choose to stay with or leave your current lender. This registration fee is to cover the cost that is associated with removing your mortgage amount from your property title in order to register it with your new mortgage. These fees are set out by the government within your province and are usually around $70.
Legal Fees
Refinancing requires you to speak to a lawyer who specializes in real estate. They will facilitate the whole financial transaction for you and work with your lender. This includes reviewing your mortgage, terms and conditions, handle your new mortgage registration and do a title search of your home or property to ensure there are no outstanding liens. This could cost you anywhere between $700 and $1000.

However, if you’re going to a new lender with a balance on your mortgage of more than $200,000, it’s likely that the new lender may cover these costs. In this case you wouldn’t have to worry about paying them yourself.