Refinancing can be an opportunity to make big changes to your current mortgage. There are a number of reasons homeowners might refinance their mortgage, but anyone considering it should understand the costs involved.

Let’s go over what it costs to refinance a mortgage and determine if it’s worth what you hope to gain.

How Much Does It Cost To Refinance A Mortgage?

A mortgage refinance could cost you $2,500 or more, depending on your circumstances. For example, your overall expenses will depend on whether you’re breaking your mortgage contract or refinancing at your term’s end. The cost will also depend on whether you’re refinancing with your current lender or switching to a new lender.

Homeowners who refinance are essentially reapplying for a mortgage, so they’ll need to pay many of the same legal and closing costs they did the first time around. That said, there are additional costs to refinancing to keep in mind.

A Breakdown Of Costs To Refinance A Mortgage

If you plan to refinance, it’s important to understand which of the following expenses will apply to you and to budget for them accordingly.

Mortgage Prepayment Penalty

Also called a mortgage breakage penalty, a prepayment penalty is a fee you’re charged if you break your mortgage contract before the end of a term. 

The amount of this fee will be 3-months’ interest on variable-rate mortgages. If your current mortgage is fixed-rate, the prepayment penalty will typically be based on what’s known as the interest rate differential (IRD), unless 3 months’ worth of interest is greater.

If you break your contract to refinance, the fee will likely be lower if you refinance closer to the end of a mortgage term. You can avoid the prepayment penalty altogether if you refinance when your mortgage is due for renewal.

Mortgage Discharge Fee

You’ll likely owe a mortgage discharge fee if you switch lenders as part of your refinance. In Canada, your discharge fee amount can vary depending on your mortgage lender and what province you live in. A typical mortgage discharge fee may be $300 or more.

Mortgage Registration Fee

Borrowers will owe a mortgage registration fee whether they’re staying with their current lender or switching to a new lender. This fee is related to your lender removing the amount of your current mortgage from your property’s title and registering it again with the new amount. Again, the amount charged with this fee can depend on your province, but on average it costs around $70.

Home Appraisal Fees

When refinancing for a new mortgage, your lender – whether you’ve switched providers or remained with your current one – will likely order a new home appraisal be done to determine your home’s current value. A home appraisal fee may cost around $500, depending on your location.

Legal Fees

You’ll need to hire a real estate lawyer when refinancing a mortgage. Your lawyer must read through the terms and conditions or your mortgage contract, register your new mortgage and also perform a title search to be sure there are no liens against your property. Legal fees for all these services could amount to $1,200 or more, though the exact amount will depend on how involved your particular situation is.

If you’re switching to a new lender, they may be able to cover or help pay your legal fees. This may depend on the size of your mortgage balance.

When Does It Make Sense To Refinance?

There are a few scenarios when refinancing makes sense and could benefit you. Three of the primary reasons you may consider a refinance are to:

  • Lower your monthly payments. You can decrease the amount you pay per month by securing a lower interest rate or lengthening your amortization period.
  • Change your current mortgage. Refinancing can also allow you to change what type of mortgage you have. For example, borrowers can change their variable- or adjustable-rate mortgage into a fixed-rate mortgage.
  • Turn your equity into cash. Homeowners can convert their home equity into cash through an equity take-out refinance (also called a cash-out refinance). Borrowers can receive up to 80% of their home’s value to put toward home improvements, debt consolidation and more.

While a mortgage refinance can save you money or put some in your pocket, you should make sure the benefits will outweigh the costs of refinancing. You should also avoid trying to refinance for a lower rate if your credit score has gone down since you secured your current mortgage contract, as you may end up with a higher interest rate instead.

FAQs About Mortgage Refinancing Costs

Here’s what other homeowners are asking in regards to the costs of refinancing your mortgage.

When is it worth it to refinance?

Refinancing a mortgage may be worth it if your gains outweigh what you’ll pay. Calculate the difference between the money you’d save on your monthly mortgage payment to what you’ll pay in refinance costs to determine if you’re making a smart decision. Otherwise, you may choose to simply renew instead of refinance.

Can refinance costs be added to a mortgage?

No. Refinance costs must be paid upfront and can’t be rolled into your new mortgage. Your real estate lawyer will ensure that you’re only paying what you owe when refinancing.

How can I avoid closing costs on a refinance?

You’re unlikely to avoid closing costs when you refinance, but you may be able to avoid certain fees. For instance, you might not have to pay a prepayment penalty if you refinance close to the end of your term, or if you refinance with your current lender.

The Bottom Line

There are good reasons to refinance a mortgage, but consider the costs before you proceed. You could owe $3,000 or more in prepayment, discharge and registration fees – and that’s not even counting closing costs for the new mortgage. If you stand to save money or need access to your home equity, then refinancing could be a good move.

Looking to refinance your mortgage? Get started today with Rocket Mortgage Canada, UL (Rocket Mortgage™).