Understanding the Costs: What to Expect When Refinancing Your Mortgage

In 2024 it is so important to understand what it takes to refinance your mortgage. Many people who made a purchase in in 2020/2021 are now experiencing this. With all the noise surrounding mortgages, I wanted to clarify what a refinance entails.

Let’s start with the basics – refinancing your mortgage involves replacing your existing mortgage with a new one, often to take advantage of lower interest rates, change the loan term, or access home equity. Here’s a comprehensive guide to the refinancing process, including a focus on closing costs and the legal aspects involved.

1. Assessing Your Financial Situation

First things first, always evaluate your current financial situation as well as your goals. Consider whether you’re looking to lower your monthly payments, shorten your loan term, or tap into your home’s equity. I would also advise to review your credit score.

2. Working with a Mortgage Agent

After determining your refinancing goals, consider enlisting the help of a mortgage agent. A mortgage agent can be invaluable in navigating the complex landscape of mortgage products and lenders. Here’s how they can assist:

-            Access to multiple lenders

-            Expertise and guidance

-            Negotiating better terms

-            Simplifying the process

-            Pre-approval assistance

Working with a mortgage agent not only saves you time but also enhances your chances of finding a refinancing solution that best fits your financial situation and goals. They are your advocate in the mortgage market, working to secure the most favorable terms and conditions.

At this step you will also go through the application and documentation phase of the mortgage. Documentation is needed during a refinance as lenders require to verify your current situation – income, assets, and your current mortgage.

3. Property Appraisal

Appraisals help the lender assess the risk and decide on the loan amount they are willing to offer, based on the current market value. The cost of the appraisal is part of the closing costs and usually ranges from $300 to $500.

4. Approval

Once your application and appraisal are complete, the lender will review all the information and decide based on your financial details, current property value, and your creditworthiness. If everything checks out, you’ll be approved!

5. Closing Costs and Legal Services

As part of the refinancing process, you’ll encounter several closing costs. These costs can include:

• Application and Origination Fees: Fees charged by the lender for processing and underwriting the new loan. These can range from 0.5% to 1% of the loan amount.

• Legal Fees: Your lawyer plays a vital role in the closing process. In Ontario, the lawyer handles several critical tasks, including:

• Discharge of the Original Mortgage: The lawyer will coordinate with your existing lender to ensure that your original mortgage is officially discharged from the property’s title.

• Handling Deferred Payments and Debt Payouts: The lawyer will facilitate the settlement of any deferred payments or outstanding debts, ensuring that all obligations are cleared.

• Addressing Penalties of the Original Mortgage: If your existing mortgage has prepayment penalties, the lawyer will calculate and ensure these are paid accurately.

• Title Search and Insurance: The lawyer conducts a title search to verify that there are no outstanding legal issues or claims against the property. They will also arrange for title insurance, which protects both you and the lender from potential future disputes over property ownership.

• Preparation and Review of Legal Documents: The lawyer prepares and reviews all necessary legal documents, including the new mortgage agreement, ensuring all terms are correctly documented.

Legal fees can range from $500 to $1,500, depending on the complexity of the refinance and the services provided.

• Title Search and Insurance Fees: Costs associated with verifying the title's status and insuring against future claims, typically ranging from $300 to $800.

• Discharge and Registration Fees: These fees cover the costs of discharging the old mortgage and registering the new one. They are usually around $200 to $400.

6. Signing and Closing

Once all the terms are agreed upon and the legal aspects are handled, you’ll proceed to the closing. During this meeting, you’ll review and sign all final documents, including the new mortgage agreement. Your lawyer will ensure that all funds are disbursed correctly, including paying off the original mortgage and any other debts or costs associated with the refinance.

7. Post-Closing

After closing, your new lender will begin servicing your loan, and you’ll start making payments under the new terms. It’s important to keep copies of all documents and stay in touch with your lender for any future questions or needs.

Looking to refinance? Book a meeting with me and get expert advice on how to do so!