How does mortgage refinancing work in Ontario and what are the typical costs?

Refinancing means replacing your existing mortgage with a new one, typically to access home equity, secure a better interest rate, consolidate debt, or change the loan structure. In Ontario, refinancing involves the same legal process as a new mortgage: the existing mortgage must be discharged and a new one registered on title.

The costs of refinancing include a potential prepayment penalty if you are breaking a closed mortgage mid-term (either three months' interest for variable or an IRD for fixed), legal fees for your lawyer to handle the discharge and new registration, a new appraisal to confirm current value, and potentially a mortgage default insurance premium if the refinancing increases your loan above certain limits. Title insurance is also typically required by the new lender.

Lenders can advance up to a certain percentage of the property's appraised value on a refinance. If you are extracting equity (taking out more than you owe), the amount you can access is limited by the maximum loan-to-value the lender will approve. The remaining equity stays in the property. A refinance that does not extract equity — simply a rate or term change — involves smaller costs. Your lawyer provides a statement of costs before closing so you know exactly what the transaction will cost net of any funds advanced.