Mortgage refinancing: put your property's value to work

Mortgage refinancing means paying off your current mortgage with a new loan, from the same lender or a different one. The new loan may be for the same amount (to change the terms) or a larger amount (to unlock part of the equity you have built up).

It differs from a renewal, which takes place at the end of the term and usually doesn't let you increase the amount borrowed.

• to get different terms (rate, term, amortization period);
• to free up funds for renovations, a project or a major expense;
• to consolidate high-interest debt: see debt consolidation;
• to remove a co-borrower, for example after a separation.

Home equity is the difference between the market value of your property and your mortgage balances. It grows as you pay down your loan and, where applicable, as the property increases in value.

For a refinance with a regulated financial institution, the total mortgage amount is generally capped at 80% of the property's value. Beyond that, or if the file doesn't qualify, a second mortgage or a private mortgage may be considered, at a higher cost.

Consolidating through a mortgage refinance is one of the most common ways for a homeowner to combine debts. A mortgage rate is usually much lower than a credit card rate. You still need to compare the total cost: stretching out the repayment of consumer debt can increase the interest paid in the end.

• The property: market value, often confirmed by an appraisal;
• income: its stability and how it can be documented;
• debt ratios: the share of your income going to housing and to all your debts;
• credit: score and payment history;
• the current mortgage: balance, remaining term and prepayment penalty.

1. Discussion of your goal and collection of documents;
2. calculation of your current lender's penalty and of the available equity;
3. comparison of lender offers and possible scenarios;
4. approval, appraisal and conditions to fulfil;
5. signing with the notary, payout of the old loan and disbursement of the balance.

• The penalty: breaking a mortgage before the end of the term generally triggers a penalty, sometimes a large one on a fixed rate;
• the fees: appraisal, notary and, in some cases, discharge fees;
• amortization: starting over on a long period lowers the payment but increases the total interest;
• timing: it is sometimes better to wait for renewal. This has to be calculated case by case.