While Canada’s inflation rate slowed to 3.4 per cent in May, Canadian households continue to be squeezed amid rising mortgage payments.looking to lower costs is refinancing, which involves breaking your current mortgage contract to start a new oneReasons for refinancing include securing a lower interest rate, consolidating high-interest debt with your mortgage, or wanting a shorter loan term.
In fact, it’s an option that’s been top of mind for some Canadians. According to a RATESDOTCA survey conducted between May 2022 and May 2023, there was aWhatever the reason for refinancing, experts caution homeowners to beware of a few things. The first step should be comparing your interest rate to rates that are currently available on the market, says Daniel Vyner, principal broker at DV Capital Corporation. Ross Taylor, president at Toronto-based Ross Taylor Mortgages, echoes this sentiment.“If you want to preserve your current mortgage, you may be better off waiting, arranging a HELOC or a second mortgage for now, planning to combine this with the first mortgage at maturity,” says Taylor.
There’s also a cost to refinancing, which is usually a prepayment penalty. Taylor says refinancing a variable-rate mortgage results in a penalty equal to three months’ interest, while fixed-rate mortgages are the greater of three months’ interest or a calculation known as the Interest Rate Differential, or IRD.
Canadians paid an average penalty of $5,173 for refinancing their mortgage early in 2022, down from an average of $6,472 in 2021,There’s also the chance that, depending on its size, the penalty could wipe out any interest rate savings, says Vyner.