Mortgage Rates when Refinancing in Canada
Refinancing your mortgage in Canada can be a smart financial move when done at the right time and for the right reasons. Whether you want to lower your interest rate, change your loan term, switch lenders, or tap into your home’s equity, refinancing can save you money and improve your cash flow. But just like when you first took out your mortgage, shopping around for the best refinance mortgage rates is key to making sure you get the best deal possible.
In this guide, we’ll walk through how mortgage refinancing works, what affects refinance rates, how to qualify for the lowest rates, and when refinancing makes the most sense. We’ll also break down the types of refinancing options available and the costs you should be prepared for.
What Is Mortgage Refinancing?
Mortgage refinancing means replacing your current mortgage with a new one, either from the same lender or a different one. When you refinance, the new mortgage pays off your old one, and you begin a new term with a new interest rate and payment schedule.
People refinance for several reasons:
- To lower their interest rate and monthly payment
- To change their mortgage term (shorten or extend it)
- To switch from a variable to a fixed rate, or vice versa
- To access some of their home’s equity in cash (called a cash-out refinance)
- To consolidate debt under a lower interest rate
Refinancing gives you more control over your mortgage, but it’s important to understand the details so you know if it’s the right step for you.
How Refinance Mortgage Rates Work
Refinance mortgage rates in Canada work similarly to regular mortgage rates. The rate you’re offered depends on several factors:
- Your credit score: Higher credit scores usually mean better rates.
- Your loan-to-value ratio (LTV): The more equity you have in your home, the lower your LTV. Lower LTV usually gets better rates.
- Your income and employment status: Stable, verifiable income makes lenders more confident.
- Your debt-to-income ratio: If you have a lot of other debt, you may not qualify for the best rates.
- The property type and location: Some properties, especially rentals or those in rural areas, might be considered riskier.
Refinance rates are often similar to new purchase rates, but sometimes they can be slightly higher, especially if you're borrowing a large amount or using the refinance to access equity.
Current Refinance Rate Trends in Canada
Mortgage rates across Canada change regularly based on economic conditions. Fixed rates are closely tied to government bond yields, while variable rates are influenced by the Bank of Canada’s overnight rate. In times of rising interest rates, many homeowners consider refinancing to lock in a lower fixed rate before rates go up further.
Staying on top of rate trends is important if you’re thinking about refinancing. Comparing rates from different lenders and using a mortgage broker can help you see what’s available and whether now is the right time to refinance.
Types of Mortgage Refinance Options
There are different ways to refinance, depending on your needs:
- Rate-and-term refinance: The most common type. You keep your loan amount the same but change the interest rate or term. Often done to get a better rate or switch from variable to fixed.
- Cash-out refinance: You borrow more than you currently owe on your mortgage and take the extra money in cash. This is often used for renovations, education expenses, or paying off higher-interest debt.
- Switch or transfer: You move your mortgage to a new lender to take advantage of better rates or terms. Often done at the end of your current term to avoid penalties.
- Blended mortgage refinance: Some lenders let you combine your existing mortgage rate with a new rate, creating a “blended” rate. This can be an option if you want to refinance early but avoid a full prepayment penalty.
How to Qualify for the Best Refinance Rates
Lenders want to see that you’re financially stable and low-risk. Here’s how you can improve your chances of getting the lowest refinance rate:
- Improve your credit score: Pay bills on time, reduce your credit card balances, and avoid taking on new debt before applying.
- Increase your home equity: The more of your home you own (as opposed to what you owe), the better your rate. Aim for at least 20% equity if possible.
- Reduce your other debts: A lower debt load improves your debt-to-income ratio, making you more attractive to lenders.
- Provide proof of steady income: Be ready to show pay stubs, tax returns, and other documents. Lenders need to see you can afford your payments.
- Compare multiple lenders: Don’t just go to your current bank. Use a mortgage broker or rate comparison tools to see what other lenders are offering.
Costs and Fees Involved in Refinancing
While refinancing can save money in the long term, there are upfront costs to be aware of:
- Prepayment penalties: If you break your mortgage before the term is up, your lender may charge a penalty. This can be thousands of dollars, depending on your mortgage type and how much time is left.
- Appraisal fees: Some lenders require an updated home appraisal to confirm the property’s value.
- Legal fees: You’ll need a lawyer or notary to help finalize the new mortgage paperwork.
- Discharge and registration fees: Your old mortgage will be discharged, and the new one registered with your province's land titles office. This can cost a few hundred dollars.
Before refinancing, calculate your break-even point—the time it will take for your monthly savings to cover the costs of refinancing.
When Is the Best Time to Refinance?
Refinancing makes the most sense when:
- Rates have dropped significantly since you first took out your mortgage.
- You want to switch from variable to fixed because rates are rising.
- You need to access home equity for renovations, tuition, or large expenses.
- You want to consolidate high-interest debt into a single, lower-rate mortgage.
However, it may not make sense to refinance if you’re near the end of your term and facing high penalties, or if the interest rate savings won’t outweigh the costs.
A mortgage broker can help you evaluate whether it’s worth it based on your specific situation.
Lenders Offering the Best Refinance Rates in Canada
There are many lenders across Canada that offer competitive refinance rates. Your options include:
- Big banks: TD, RBC, BMO, CIBC, and Scotiabank all offer refinancing. They’re convenient and familiar but may not offer the lowest rates.
- Credit unions: These member-owned institutions often provide good rates and local service.
- Online lenders: Digital-first lenders may offer lower rates and fast approval processes.
- Mortgage brokers: Brokers compare rates from multiple lenders to find the best deal for you. They’re often free to use, since they’re paid by the lender.
Comparing offers is one of the most important steps in refinancing.
Compare Mortgage Rates when Refinancing with Dollarwise
Refinancing your mortgage in Canada can lead to real savings, lower payments, and greater financial flexibility. But it only works in your favour if you take the time to compare refinance rates, understand your options, and calculate the costs.
By improving your credit, reducing your debt, building home equity, and shopping around for the best rates, you can put yourself in a great position to refinance successfully.
Start by using a refinance rate comparison tool or speaking with a mortgage broker. With the right preparation, refinancing can be a powerful tool for managing your mortgage and reaching your financial goals.
