How Does Remortgage Work?

Note: Refinancing and remortgaging are the same

What is a Remortgage in Canada?

A remortgage is the same as refinancing your mortgage, which is when you decide to take out another mortgage so that you can replace your current one with the new mortgage. Remortgaging a house does not involve moving out of a home or taking out a second mortgage for the home, rather getting a new mortgage to pay off the current one with. The 2 most common reasons for remortgaging is to lock in a lower interest rate, or to access some of your existing home equity.

What is the difference between Remortgage and Refinance?

A remortgage and a refinance are the same thing; a refinance is the more commonly used term in Canada to describe taking out a new mortgage and using it to pay off your existing mortgage. The same term used in the UK is remortgaging, when you also pay off your mortgage by getting a new mortgage for your property. Because of each term having the same meaning, it is common to hear both terms used interchangeably when discussing a mortgage.

Can you Remortgage before the end of your mortgage term?

Yes, you are able to remortgage your property before the end of your mortgage term. If you decide to do this however, it is likely that you will incur a mortgage prepayment penalty. A prepayment penalty will cost you potentially thousands of dollars in expenses, however you still will be able to remortgage if you choose. If you are planning on remortgaging before the end of your mortgage term, an open mortgage will allow you to prepay your entire mortgage with money from a new mortgage without incurring a prepayment penalty.

How early can you remortgage?

You are able to remortgage at any time during your mortgage, as long as a lender is willing to offer you a new mortgage to pay your existing one off with. The main issue with remortgaging at any time however is the mortgage prepayment penalties you will incur, which will be much larger if you decide to remortgage early in your mortgage term. The reason for this is because your mortgage prepayment penalty will be based on the difference in mortgage rates, the size of your mortgage, and the time left on it.

How much are legal fees to remortgage?

Similar to refinancing, remortgaging a property will require the work of a lawyer. The lawyer will be refinancing on your behalf, will review your terms and conditions, register your mortgage, and do a title search. Overall you can expect to incur fees of over $500 for legal fees related to remortgaging your property. It is also important to ask what your lender will cover, as some lenders may cover these legal fees if you are switching over from another lender.

How much can you remortgage your property for?

You are able to remortgage your property for up to 80% of the home's value, less the outstanding balance of your mortgage. This means that if the value of the home has risen, and you have paid down your mortgage amount over the years, you may be able to access substantial equity.

For example, you have a $500,000 mortgage amount left over, and you have a home that is worth $900,000. This means that 80% of the home's value will be $720,000, and that minus the $500,000 mortgage balance will mean you will be able to access $220,000.

Can you remortgage to release equity?

Yes, this is one of the main reasons that homeowners with equity decide to remortgage their home, because they can unlock substantial equity built-up within. You are able to unlock 80% of the home value, minus the mortgage balance. If you have had the home for a long time, it's likely that you can release substantial amounts of equity, which can help you purchase another home, do a renovation, cover expenses, and pay for education costs.

Can you remortgage to consolidate debt?

Yes, it is common for a mortgage holder to remortgage for more than their prior mortgage so that they can consolidate debt. This can be an effective strategy if you have the equity in your home to do it, as mortgage debt will usually have lower interest rates than other forms of debt, including credit cards, unsecured lines of credit, and car loans.

Can you remortgage with the same lender?

Yes, you are able to remortgage with the same lender. The only requirement for this may be that you need to pay a prepayment penalty to break your existing mortgage, however this will be true with any remortgage before your term is up. It is important however to shop around and look for the best remortgage rate, considering that even small reductions in your mortgage rate can mean large savings over time.

What is the cost to remortgage a house?

The main cost you will incur when remortgage a house may be prepayment penalties, which occur if you prepay your mortgage balance before your term is up. Other costs include legal fees and home appraisal costs, with both being needed to get a new mortgage. Although these costs may add up, it is entirely possible that the savings related to remortgaging, whether that be to access cash cheaper, lower mortgage rates, or consolidate debt may make up for the costs.

How easy is it to remortgage with the same lender?

It will be a simpler process remortgaging with the same lender, as you already have a relationship with them and they have all your information. However, if another lender offers a better rate, the savings may be worth more to you than the added simplicity that remortgage with the same lender offers.

What factors should you consider before remortgaging?

You should consider how much equity you will be able to access when you remortgage, what your remortgage rate will be, and how that compares to your prior mortgage rate. If you have a lot of equity you can access, this may make remortgaging more appealing, especially if you have a plan for the equity. When it comes to your remortgage rate, if you are able to get a much better rate, it may be more worthwhile even if you do not plan on accessing additional equity. That's why it's important to compare mortgage rates between lenders when remortgaging so that you know what rates are competitive and what rates aren’t.

Should you get your house revalued before remortgaging?

Getting your home revalued at the same time can be a good choice if you plan on accessing additional equity, as your lender will likely require it. Even if you do not plan on accessing equity, revaluing your home may allow you more flexibility to access equity later on.

When should you start looking to remortgage?

The best time to remortgage your property is when your existing mortgage has come to an end or is coming to an end, considering that you will avoid prepayment penalties. As well, it can be good to remortgage if you have either a variable mortgage rate that you want to lock in, you want to take advantage of lower mortgage rates, or if you have a cash need for something such as a renovation or large purchase.

Can you remortgage with bad credit?

Having a bad credit score can make remortgaging a home harder, however alternative lenders such as a B-lender may still be an option. If you already have a mortgage, it can be helpful to shop periodically to see what options are available if you have bad credit, or to wait until your credit score improves.

How can I remortgage to get money for a home renovation?

Remortgaging to access equity is one of the most common reasons people get a remortgage, and doing home renovations with that equity is also very common. You are able to normally remortgage, which will provide you with the cash you need to do your home renovation. As well, if you want to access equity for a renovation, a home equity line of credit (HELOC) may also be a good option, as it only incurs interest on the amounts you use, rather than on the whole mortgage.