Common reasons people refinance
Debt consolidation
Rolling higher-interest balances into mortgage debt can lower total monthly payments - but it stretches that debt over a much longer amortization.
Renovations
Funding a kitchen, basement or addition without a separate high-rate loan.
Accessing equity
Freeing up cash for a down payment on another property, a business need or tuition.
Changing structure
Switching between fixed and variable, adjusting amortization, or adding a home equity line of credit.
Cash flow
Re-amortizing to reduce the required monthly payment when income has changed.
How much you can refinance
On a conventional refinance, most lenders will go up to 80% of the home's appraised value, including any existing mortgage balance. So if a home appraises at $900,000 and you owe $500,000, the theoretical ceiling is $720,000, leaving up to $220,000 in accessible equity - subject to qualifying for that larger payment.
Refinances cannot be default-insured, which is why 80% is the practical limit. An appraisal is almost always required, and the appraised value, not your estimate, is what the lender uses.
The penalty question
If you break a mortgage mid-term, the lender charges a prepayment penalty. On a variable rate it is commonly three months' interest. On a fixed rate it is the greater of three months' interest or an interest rate differential (IRD), and IRD calculations vary considerably between lenders - they can be a few thousand dollars or well into five figures.
Before anything else, get your exact payout figure from your current lender. Then the comparison is simple arithmetic: does the benefit of refinancing exceed the penalty, plus legal, appraisal and discharge costs, over the time you plan to keep the mortgage?
Sometimes the answer is to wait for renewal instead. That is a legitimate outcome, and it is the one Vincent will tell you about if the numbers say so.
Qualifying again
A refinance is a new approval. Income, debts, credit and the stress test all apply again, and the larger balance has to fit within debt-service ratios. If your income has changed since you first got the mortgage, that is worth reviewing before you plan around the money.
Next step
Send in the online application with your current balance and what you are trying to do with the equity, and we will work out whether refinancing now or waiting for renewal makes more sense.