How Much Will it Cost to Refinance?
Refinancing is often chosen as alternative by borrowers to either get a lower interest rate or access the equity out of their home. It is essential to know the cost of refinancing to take a calculated decision for refinancing.
Refinancing allows borrowers to access up to 80% of their home’s value less the outstanding balance of their mortgage. For instance, if your home is valued at $300,000 and you have an outstanding mortgage of $100,000, then available equity will be 1, 40,000
There are mainly two kinds of refinancing viz. refinancing within your term and refinancing at the end of your term. When you choose for refinancing within your term, you can get mortgage at lower rate or can take equity out of your home. If you refinance at the end of the term it would allow you to access equity out of your home. There are several kinds of fees involved in both kinds of refinancing methods such as mortgage payment penalty, mortgage discharge fee, mortgage registration fee, legal fees etc.
Mortgage Pre-payment Penalty
If refinancing allow you to pay your mortgage before your term is up for renewal, you’ll have to pay a mortgage prepayment penalty fees along with other fees associated with refinancing mortgage. However, if you are refinancing when your mortgage term is up for renewal, you don’t need to bear prepayment penalty. In case of fixed rate mortgage, prepayment penalty will be the greater of: Three months’ interest or the interest rate differential (IRD). In case of variable rate mortgage, your penalty will be interest paid for three months.
Mortgage Discharge Fee
In case you decide to leave your current lender, you will have to pay a fee to discharge your mortgage from your current lender. Each lender sets his own fee rates, however mortgage discharge fees in Canada typically varies between $200 and $350.
Mortgage Registration Fee
While setting up your loan, your lender will secure it by registering a “charge” against your property. Whether you are leaving or staying with current lender, you will have to pay registration charges in both cases. There are two kinds of charges that can be registered against property; standard and collateral. Mortgage registration fee is usually governed by your provincial government.
In order to refinance your mortgage, you need to consult with a proficient lawyer to provide you with right guidance as well as to facilitate the entire transaction. Such lawyer will review the mortgage and its terms and conditions before registering the new mortgage. He will also carry out a title search to assure that there are no leans made against your property. Legal fees for a refinance typically range between $700 and $1,000. If you are switching lenders and your mortgage balance is more than $200,000, your new lender might pay legal fees on your behalf.