Question 1

How is a mortgage prepayment penalty calculated in Canada?

Accepted Answer

For fixed-rate mortgages in Canada, the penalty is the greater of three months' interest or the Interest Rate Differential (IRD). The IRD compares your contract rate to your lender's current rate for a term closest to your remaining term, multiplied by your remaining balance and the months left. IRD penalties can be very large — often $10,000–$30,000 — when you break a fixed-rate mortgage in a falling-rate environment. Variable-rate mortgages almost always have a simpler penalty of just three months' interest. Get the exact dollar amount from your lender before refinancing.

Question 2

When does it make sense to break your mortgage early in Canada?

Accepted Answer

Breaking your mortgage early makes sense when the long-term interest savings exceed the cost to break (penalty + legal fees). A common rule of thumb: if you have more than 3 years left on your term and can get a rate at least 1% lower, the math often works in your favour. However, every situation is different — this depends on your remaining balance, your exact rate difference, and how long you plan to stay in the property. Use the breakeven figure in this calculator: if you'll own the home longer than the breakeven period, refinancing is likely worth it.

Question 3

What is the difference between refinancing and renewing a mortgage in Canada?

Accepted Answer

Renewal happens automatically at the end of your mortgage term with no penalty — you simply accept a new rate and continue. Refinancing means breaking your existing mortgage before the term ends, which triggers a prepayment penalty. Refinancing is chosen when the savings from a lower rate outweigh the penalty cost, or when you need to access home equity, change the amortization period, or consolidate debt. At renewal, there is no penalty, so if you can wait, that is usually the lower-cost option.

Question 4

What are the legal fees to refinance a mortgage in Canada?

Accepted Answer

Legal fees to refinance a Canadian mortgage typically range from $1,000 to $2,000. This covers the lawyer or notary discharging your old mortgage and registering the new one with the land title office. Some lenders offer cashback or fee coverage to attract refinances, so it's worth asking your new lender whether they cover legal costs. In this calculator, the default is $1,500 — adjust it to match your actual quote.

Question 5

What is a blend-and-extend mortgage in Canada?

Accepted Answer

A blend-and-extend is an alternative to a full refinance: your existing lender blends your current rate with their current offered rate, creating a new rate between the two, and extends your term — without charging an IRD penalty. It avoids the penalty but gives you a rate higher than the market rate since it's blended with your existing (higher) rate. It's best used when the prepayment penalty is very large or when you plan to sell the property relatively soon.

Question 6

Does refinancing affect my credit score in Canada?

Accepted Answer

Yes, refinancing involves a new mortgage application, which includes a hard credit inquiry. This typically causes a minor, temporary dip (5–10 points) in your credit score. If you're shopping multiple lenders, try to do so within a 14–45 day window — credit bureaus in Canada generally treat multiple mortgage inquiries in a short period as a single inquiry for scoring purposes. The long-term impact of refinancing on your credit score is usually neutral to positive, since you're replacing one mortgage with another.

Question 7

Should I extend my amortization when refinancing?

Accepted Answer

Extending your amortization lowers your monthly payment but means you pay interest for more years — which usually costs significantly more in total interest, even at a lower rate. For example, resetting from 15 years remaining to 25 years at a lower rate might lower your monthly payment by $400/month but cost $80,000 more in total interest. Use this calculator to compare keeping your amortization the same versus extending it. Extending amortization is best used as a short-term cash-flow measure, not a long-term wealth strategy.

Mortgage Refinance Calculator Canada

When does refinancing a Canadian mortgage make sense?

Common refinancing questions