What does it mean to refinance my mortgage, and what does it cost to arrange?

Refinancing versus renewing

Renewing keeps the same balance and simply resets the rate and term. Refinancing changes the deal itself, usually by increasing the amount borrowed, before the current term has ended. Because more is at stake for the lender, refinancing is underwritten closer to a new mortgage: income, debt and the property's current value are all reviewed again.

Most lenders limit how much you can borrow against a property's value, and mortgage default insurance is generally not available for a refinance, which affects how much can be raised.

The early payout charge

Refinancing before your term ends usually means paying out the existing mortgage early, which triggers whatever early payout charge the current mortgage sets out, commonly three months' interest or a differential for a fixed term. This is a cost to weigh against whatever refinancing is meant to achieve, whether a better rate, extra funds or consolidating other debt.

Ask your current lender for the exact figure before committing to a new one elsewhere.

Registering the new charge

A refinance registers a new charge against the property and discharges the one it replaces, the same as switching lenders at renewal, except the amount and sometimes the lender change. If a home equity line of credit or a second mortgage is also registered against the property, its priority relative to the new charge needs to be addressed before closing.

Your lawyer confirms what is registered against title and arranges for anything being paid out to be properly discharged.

What the money can be used for

Nothing in Ontario law restricts what refinanced funds are used for, though the lender's own policies may. Common reasons include consolidating higher-cost debt, funding a renovation, or raising a down payment for another property. Whatever the purpose, the new mortgage is underwritten on your ability to carry the larger, or changed, payment going forward.

We do not advise on whether refinancing achieves your financial goal; that is a question for you and, often, an accountant or financial advisor.