Question 1

When does refinancing a mortgage make sense in Canada?

Accepted Answer

Refinancing makes sense when the interest savings over your remaining term outweigh the total cost to break your existing mortgage. As a rule of thumb, if your new rate is at least 0.50% lower than your current rate and your break-even point is under 24 months, refinancing is generally worth it. Other reasons to refinance include accessing home equity for renovations or debt consolidation, switching from a variable to a fixed rate (or vice versa), or extending your amortization to reduce monthly payments.

Question 2

How is the mortgage break penalty calculated in Canada?

Accepted Answer

Canadian lenders calculate break penalties in two ways. For variable-rate mortgages, the penalty is typically 3 months of interest on the outstanding balance. For fixed-rate mortgages, lenders use the greater of 3 months of interest or the Interest Rate Differential (IRD). The IRD is calculated as: (your contract rate − the lender's current posted rate for the remaining term) × outstanding balance × remaining months / 12. Big bank penalties are typically much higher than those from monoline lenders and credit unions because they use discounted rates in their IRD calculation. Always get your exact penalty figure from your lender before deciding.

Question 3

What legal and admin costs should I expect when refinancing?

Accepted Answer

Typical refinancing costs in Canada include: legal/notary fees ($900–$1,500), a home appraisal ($300–$500), a discharge fee charged by your existing lender ($200–$400), and a registration fee to register the new mortgage ($50–$200 depending on province). Some lenders offer a "cashback" refinance that covers legal fees — but this is usually priced into a slightly higher rate. Budget $1,200–$2,500 in total for legal and administrative costs on top of any break penalty.

Question 4

Is refinancing worth it if I have 2 years left on my mortgage term?

Accepted Answer

With only 2 years remaining, refinancing is rarely worth it. Your break penalty could be significant (especially with a fixed rate at a big bank), and there are only 24 months of savings to recover it. The better strategy is usually to wait until renewal, negotiate aggressively at maturity, and potentially lock in a lower rate at that point. The exception: if rates have dropped dramatically and your remaining balance is large, run the numbers — it may still be worth breaking. This calculator will show you the exact break-even point for your situation.

Penalty Type	Who It Applies To	Typical Amount
3-Month Interest	Variable-rate mortgages; also the floor for fixed-rate	Low — often $2,000–$6,000 on a $400K mortgage
Interest Rate Differential (IRD)	Fixed-rate mortgages when current rates are lower than your contract rate	Can be $10,000–$30,000+ at big banks
Big bank IRD (discounted)	Clients at the major 6 banks with discounted posted rates	Much higher — banks use posted rates in the calculation
Monoline / credit union IRD	Clients at smaller lenders who price using contract rates	Typically lower — often comparable to 3-month interest

Mortgage Refinance Break-Even Calculator

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Cost Recovery Timeline

When Does Refinancing Make Sense?

IRD Penalty vs 3-Month Interest: What You Will Owe

How to Time Your Refinance

All the Costs to Factor In

Frequently Asked Questions

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