FEES ASSOCIATED WITH REFINANCING
There many things to consider when refinancing your home loan. The fees associated with refinancing can add up quickly so, many mortgage companies will waive fees associated with refinancing applications and legal fees. This fee reduction can amount to large savings for the home owner but may result in a slightly higher percentage rate than expected. It is important to talk about your loan options with your Mortgage Broker. Additionally, the amount of time you plan to spend in your home will impact your decision to refinance. If you decide to pay the fees upfront and take advantage of the lowest possible rates, consider having around 1.5% of the mortgage amount set aside for legal fees and appraisal (if required), not including the penalty fee wich would be the largest fee assocaiated with refinancing. If your mortgage is up for renewal, than no fees will be incurred.
Some of the fees include:
The most common penalty is:
The greater of three months interest penalty OR the interest rate differential.
In other words, whichever amount is the larger of these two figures will be your penalty.
THREE MONTHS INTEREST PENALTY
If you are paying off your mortgage before the maturity date, most lending institutions charge three months interest penalty (or an interest differential penalty).
Your present mortgage balance is multiplied by your current interest rate and multiplied three.
INTEREST RATE DIFFERENTIAL / LOSS OF INTEREST
This usually means the difference between the interest rate on your mortgage contract compared to the rate at which the lending institution can re-lend the money.
For example:
If your mortgage has a balance of $125,000 at 9.25%, you have 2 years left to go and the current 2 year mortgage rate is 6.25%. Then the lending institution will probably charge you -
$125,000 X 24 months X 3% (9.25 - 6.25) = $7,266.21
However, just to further confuse the issue, the penalty above has not been present valued. This is when a lender charges a lower penalty because you are paying all of the 'extra' interest (in the example 3%) now, not over the remaining term. Some lenders present value, other lenders do not.
- Lawyers / Legal Fee - on average the cost would be approx. $400 - $1000 in most cases.
- Searches and registration costs – should be included in the legal fee (verify with lawyer)
- Title Insurance Fee– should be included in the legal fees (verify with lawyer)
- Appraisal Fee – can be negotiated with your mortgage broker – but approximately $200 - $400 depends on appraiser and home location.
- Insurance Premium – if your mortgage Loan to Value (LTV) is less then 80% than there will be an Insurance Premium charge from either CMHC (Canadian Mortgage and Housing Corporation) or Genworth, this charge is added to your total mortgage amount on closing.