Refinancing: When It Helps and When It Does Not

Refinancing means replacing your current mortgage with a new one, usually to borrow more against your home, change the amortization or change the terms. It can be a sensible tool. It can also cost more than it saves. The difference is in the details of your contract and your reasons.

Why people refinance

Consolidating debt. Rolling credit card or loan balances into the mortgage can lower the interest rate on that debt and replace several payments with a single payment.
Renovations. Using the equity in your home to pay for major work, rather than a loan or line of credit that may carry a higher rate.
A better fit. Changing the amortization, the payment or the type of mortgage because your income, household or plans have changed.
A large expense. Education, helping a family member or another significant cost.

What it can cost

If you refinance before your term ends, a prepayment charge usually applies. How it's calculated depends on your contract and on whether your rate is fixed or variable, and it can be substantial. Your lender can tell you the current amount.

There are also legal fees to register the new mortgage, often an appraisal fee, and sometimes a fee to discharge the old mortgage. You'll need to qualify again under the rules in place now, and there are limits on how much of your home's value you can borrow against.

The less obvious trade-offs

Moving short-term debt into a mortgage usually means repaying it over a much longer time. The payment drops, but the total interest on that debt may end up higher, not lower. The debt also becomes secured by your home. And if the spending that built the balances doesn't change, they can return alongside a larger mortgage.

Borrowing against your home for a renovation adds to what you owe, and the work may or may not add the same amount to the home's value.

The questions that decide it

What does it cost, in total, to make the change now?
How does that compare with waiting until renewal, when a prepayment charge typically doesn't apply?
What is the total cost over time, not only the monthly payment?
Are there other ways to reach the same goal, such as a secured line of credit, or a lender's option to blend your existing rate with a new one?
How long do you expect to stay in the home?

Sometimes the arithmetic clearly favours refinancing, sometimes it clearly doesn't, and often it's close enough that your own comfort and plans settle it. We can help you lay the figures side by side; the decision stays with you.

If you're wondering whether refinancing makes sense in your situation, we're happy to look at it with you, with no obligation.