Mortgage Refinance Calculator

Most mortgages in Canada are closed mortgages, meaning you can’t break the mortgage contract to refinance without a penalty. And those penalties can be sizable. In fact, penalties can negate much or all of your savings, and that may impact your decision or ability to refinance.

Before starting the refinance process, you’ll first want to estimate the cost to break your current mortgage. This is easy to determine for most variable or adjustable rates, since the penalty is typically just three months’ interest.

Fixed rates, on the other hand, often entail a steeper penalty since they’re calculated using the greater of three months’ interest or the interest rate differential (IRD).

The IRD is calculated by taking the difference between your rate and the rate your lender could lend at today, for a timeframe equivalent to your remaining term. The more your rate is above today’s rates, the higher the IRD charge.

There are many “fair penalty lenders” out there. They charge lower prepayment penalties for fixed rates, but Canada’s Big Six banks are not among them.

If you’ve been late with your debt payments, especially if you have a credit score under 600, it helps to spend time improving your credit before applying for a refinance.

The good news is that, with some effort, your credit score can be repaired in as little as 12 months or less. The easiest way to boost your score is to pay your bills on time and pay down existing non-mortgage debts to less than 70% of their credit limits. For best results pay them down to below 30% of the credit limit. This improves your “credit utilization,” a critical factor in determining your credit score.

It also doesn’t hurt to use a free credit reporting website—offered by the likes of Borrowell, Mopolo, Credit Karma or Mogo—so you can review your credit report and correct any errors that may be negatively influencing your score.

Mainstream lenders always carefully verify your employment, but they’ve been even more careful about income validation since the advent of COVID-19.

If your job isn’t deemed essential, for example, prepare to have your application face higher scrutiny. The same goes for self-employed borrowers in hard-hit businesses.

Home prices have risen significantly in many regions of the country. That can work to your advantage on a mortgage refinance. That’s because it reduces your loan-to-value (LTV). A lower LTV opens up more lending options and reduces your risk in the eyes of a lender.

If you’re a risk-tolerant borrower, choosing a shorter term can save you interest and give you more flexibility (i.e., not bind you to your lender for as long, thus reducing your penalty exposure on early prepayments). A shorter term can also be a great alternative to a variable mortgage, especially when variable-rate discounts aren’t so hot.

In a flat to falling rate environment, opting for a floating-rate mortgage can magnify your interest savings on a refinance. Just keep in mind that when the Bank of Canada is at its effective lower bound of 0.25% (as it was during summer 2020), variable rates can likely only go sideways or up.

Mortgages are nuanced products. The data returned by this calculator is for general interest only. Before acting on any online mortgage information, talk to a professional licensed mortgage advisor to confirm your financing plan.