Mortgage Refinance Legal Steps and Closing Process in Ontario

When you refinance, you borrow against your home, often to pay out your current mortgage, consolidate debt or raise cash. The lender will usually insist that a lawyer handle the legal side before any money is advanced.

This article walks through what usually happens at that stage and what you can do to keep it smooth. Your own steps can vary with the lender, the type of property and the kind of loan.

What a refinance involves legally

A refinance means the home is security for a new or larger loan. You can usually borrow up to 80% of your home's value, minus what you still owe. The home is the security, and if you cannot repay you may lose it through foreclosure.

If the new loan is a second mortgage rather than a replacement, you must keep paying the first mortgage too, and second-mortgage interest rates are usually higher because they are riskier for lenders.

Title search and priority

Your lawyer searches title to see who owns the property and what is registered against it, such as existing mortgages, liens or other claims. The new lender wants to know where its mortgage will rank.

Under the Land Titles Act, registered instruments affecting the same interest in the same parcel rank according to the order in which they are entered in the register, so a second charge ranks behind an earlier registered first charge. A charge's priority can be changed by registering a postponement under subsection 78(6) of the Land Titles Act.

For a condominium unit, unpaid common expenses matter. A registered condo lien has priority over every registered and unregistered encumbrance on the unit, including an earlier mortgage. The condo lien's priority over a mortgage has an exception for timing and notice: the lien loses priority over a mortgage if the corporation does not register it within three months, or does not give written notice to every registered encumbrancer on or before the day it registers the certificate of lien. The lien also does not have priority over a claim of the Crown, other than a claim by way of mortgage.

That is one reason a lawyer checks the status of the unit before the new mortgage is registered.

Documents and paying out the old mortgage

Before closing you will usually be asked to sign the lender's mortgage documents and give your lawyer identification and details of the property and your existing mortgage. The lawyer arranges for the funds to pay out the old mortgage and for it to be discharged, and then registers the new mortgage.

• A payout statement from your current lender showing what is needed to pay the mortgage off.
• The new lender's instructions and mortgage terms.
• Proof of insurance and any other items the lender requires.
• Your signed documents and identification.

If you end your current mortgage early, the prepayment penalty is usually the higher of 3 months' interest on what you still owe or the interest rate differential. Where the mortgage term is longer than five years, after five years from the mortgage date the borrower may pay off the principal and interest plus three months' further interest in lieu of notice. That right does not apply to a mortgage given by a corporation.

Check the terms before you sign

Read the rate, fees and payment terms carefully. Private mortgages are generally a short-term option, often for one or two years, are often interest-only, and often carry higher fees than a traditional mortgage. Borrowers should have an exit strategy and consider independent legal advice before signing.

If a mortgage broker is involved, check the licence on FSRA's public listing. A brokerage must take reasonable steps to make sure any mortgage it presents is suitable for your needs and circumstances, and must disclose material risks in writing.

What to do next

• Contact a lawyer as soon as you have a lender's commitment.
• Ask your current lender for a payout figure and the penalty, if any.
• Gather your property tax, insurance and identification documents.
• Read the new mortgage terms and ask about anything unclear before closing day.
• For a condo, ask your lawyer to check for unpaid common expenses.

Frequently asked questions