Refinance 101: Know Your Options

Not all mortgage changes are created equal. Here's how to tell the difference between a refinance, switch, transfer, early renewal, and HELOC—and when each makes sense.

What is a Refinance?

A refinance means breaking your current mortgage and taking out a new one, often to access equity, consolidate debt, or get a better rate. You can borrow up to 80% of your home's value (minus existing mortgage balance).

Switch vs Transfer

Switch: Moving to a new lender at renewal (no penalty, no appraisal typically).
Transfer: Moving mid-term (may involve penalties, appraisal, legal fees).

Early Renewal

Some lenders let you renew 120-180 days early to lock in a rate. No penalty, but you restart your term. Compare the new rate vs. waiting until maturity.

HELOC (Home Equity Line of Credit)

A revolving credit line secured by your home (up to 65% of value). You pay interest only on what you use. Great for ongoing expenses (renovations, tuition) but rates are higher than mortgages.

When to Refinance

• Access equity for renovations, debt consolidation, or investment
• Consolidate high-interest debt (credit cards, loans)
• Remove a co-borrower (separation/divorce)
• Switch from variable to fixed (or vice versa)

Penalties Explained

Variable: 3 months' interest (usually $1,000-$3,000).
Fixed: Greater of 3 months' interest or Interest Rate Differential (IRD), which can be $10,000-$30,000+ depending on rate drop and remaining term.

Refinance vs HELOC: Which is Better?

Feature	Refinance	HELOC
Rate	Lower (mortgage rate)	Higher (prime + 0.5-1%)
Access	Lump sum	Revolving (draw as needed)
Payment	Principal + interest	Interest-only minimum
Best for	One-time needs, debt consolidation	Ongoing expenses, flexibility

Mini-FAQ

Q: How much can I borrow in a refinance?
A: Up to 80% of your home's current value, minus your existing mortgage balance.

Q: Will I need an appraisal?
A: Usually yes, to confirm current market value. Cost is $300-$500.

Q: Can I refinance if I'm self-employed?
A: Absolutely. Stephanie works with multiple income documentation options.

Second Mortgages: When They Make Sense

A second mortgage is a separate loan secured by your home, sitting behind your first mortgage. It's often used when refinancing your first mortgage would be too expensive (high penalty) or when you need quick access to equity.

How Second Mortgages Work

Your first mortgage stays in place. The second mortgage lender registers a second lien on your property. If you default, the first mortgage gets paid first, then the second—so second mortgages carry higher risk and higher rates (typically 7-12%).

When to Consider a Second Mortgage

• Your first mortgage has a high penalty (IRD on fixed)
• You have a great rate on your first mortgage and don't want to lose it
• You need funds quickly (second mortgages close faster)
• You're close to renewal (keep first intact, pay off second at renewal)

Example: Mississauga Homeowner

John has a $400,000 first mortgage at 2.5% (locked in 2021, 3 years remaining). His penalty to break is $18,000 (IRD). He needs $50,000 for renovations. Instead of refinancing, he takes a $50,000 second mortgage at 9% for 2 years. At renewal, he consolidates both into one new first mortgage.

Second Mortgage vs Refinance

Feature	Second Mortgage	Refinance
Rate	Higher (7-12%)	Lower (mortgage rate)
Penalty on First	None	Yes (3 months or IRD)
Closing Time	Faster (1-2 weeks)	Slower (3-6 weeks)
Best for	High penalty, short-term need	Long-term, lower rate

Costs & Terms

• Rate: 7-12% (higher than first mortgages)
• Term: 1-5 years (often 1-2 years)
• Lender Fee: 1-3% of loan amount
• Legal: $1,000-$1,500
• Appraisal: $300-$500

Risks & Considerations

• Higher interest rate (more expensive over time)
• Shorter term (balloon payment at maturity)
• Your home is collateral (default = foreclosure)
• Lender fees can be significant

Alternatives

• HELOC: Revolving credit line (if you qualify)
• Refinance: If penalty is low or you're close to renewal
• Unsecured Loan: Higher rate, no home at risk

Mini-FAQ

Q: Can I have more than one second mortgage?
A: Technically yes (third, fourth liens), but rates increase and availability decreases.

Q: Will my first mortgage lender know?
A: Yes. Most first mortgages require lender consent for additional liens.

Q: Can I pay off a second mortgage early?
A: Usually yes, but check for prepayment penalties (often 3 months' interest).

Self-Employed Mortgages: Your Complete Guide

Being self-employed doesn't mean you can't get a mortgage—it just means you need to document income differently. Stephanie works with multiple income verification options to find the best fit for your situation.

Who is "Self-Employed"?

Lenders typically consider you self-employed if you:

• Own 25%+ of a business
• Work as an independent contractor
• Earn commission-based income
• Are a sole proprietor or partner

Income Documentation Options

Option 1: Full Documentation (Best Rates)

Provide 2 years of Notice of Assessments (NOAs) and T1 Generals. Lenders average your net income (Line 15000) over 2 years. This gets you the best rates but requires strong declared income.

Option 2: Stated Income (Alternative Lenders)

Declare your income without full tax docs. Requires 20-35% down payment and higher rates (typically 1-2% above prime). Good for newer businesses or those who write off heavily.

Option 3: Business-for-Self (BFS)

Some lenders accept a letter from your accountant confirming income, plus 2 years of business bank statements. Rates are slightly higher than full doc but lower than stated.

Option 4: Add-Back Method

Add back certain business expenses (depreciation, CCA, meals & entertainment) to increase qualifying income. Requires accountant letter and detailed financials.

Option 5: Gross Income (Specific Programs)

A few lenders will use gross business income (before expenses) for certain professions (doctors, dentists, lawyers). Requires 2 years in business and strong credit.

Documents You'll Need

• 2 years of personal tax returns (T1 Generals)
• 2 years of Notice of Assessments (NOAs)
• 2 years of business tax returns (T2 for corp, T2125 for sole prop)
• Business bank statements (3-24 months depending on program)
• Articles of incorporation (if applicable)
• Accountant letter (for some programs)
• Proof of business ownership (25%+ share)
• Business license or registration

Common Challenges & Solutions

Challenge: "I write off everything—my net income is low."
Solution: Use stated income or add-back method with alternative lender.

Challenge: "I've only been self-employed for 1 year."
Solution: Some lenders accept 1 year if you have 2+ years in the same industry as an employee first.

Challenge: "My income fluctuates seasonally."
Solution: Lenders average over 2 years to smooth out peaks and valleys.

Challenge: "I'm a contractor with multiple clients."
Solution: Provide contracts, invoices, and bank deposits to show consistent income.

Tips to Strengthen Your Application

• Maintain strong credit (680+ score)
• Save a larger down payment (20%+ opens more options)
• Keep business and personal finances separate
• Work with an accountant to optimize tax strategy
• Document all income sources (bank deposits, contracts)
• Avoid large write-offs in the 2 years before applying

Example: Kitchener Contractor

Mike is a self-employed electrician. His NOAs show $45,000 net income (after write-offs), but his gross is $95,000. Using a BFS program with bank statements and accountant letter, he qualifies for a $400,000 mortgage with 20% down at 5.5% (vs 4.8% full doc).

Mini-FAQ

Q: Do I need 2 years of self-employment?
A: Most lenders prefer 2 years, but some accept 1 year if you have prior industry experience.

Q: Can I use my corporation's income?
A: Yes, if you own 25%+ and can provide T2 returns and financial statements.

Q: What if I have multiple income sources?
A: Great! Lenders like diversification. Provide docs for each source.

Ontario Closing Costs: What to Expect

Closing costs are the fees and expenses you pay when finalizing your home purchase. In Ontario, budget 1.5-4% of the purchase price. Here's a complete breakdown.

Legal Fees

Cost: $1,500-$2,500 + disbursements ($300-$500)
What it covers: Title search, registration, document preparation, fund transfers, title insurance.

Ontario Land Transfer Tax (LTT)

Provincial tax on property transfers. Rates are tiered:

• 0.5% on first $55,000
• 1% on $55,000-$250,000
• 1.5% on $250,000-$400,000
• 2% on $400,000-$2,000,000
• 2.5% on amounts over $2,000,000

First-Time Buyer Rebate: Up to $4,000 (max purchase $368,000)

Toronto Municipal Land Transfer Tax

Toronto charges an additional municipal LTT (same rates as provincial). First-time buyers get up to $4,475 rebate.

Home Inspection

Cost: $400-$600
Why it's worth it: Identifies issues before you buy. Can save thousands in repairs.

Appraisal

Cost: $300-$500
When required: High-ratio mortgages, refinances, some lenders require for all purchases.

Title Insurance

Cost: $200-$400 (one-time)
What it covers: Title defects, fraud, survey issues, zoning violations.

Mortgage Insurance (CMHC/Sagen/Canada Guaranty)

Cost: 0.6-4% of mortgage amount (added to mortgage)
When required: Down payment less than 20%

Down Payment	Premium
5-9.99%	4.00%
10-14.99%	3.10%
15-19.99%	2.80%
20%+	0% (not required)

Property Tax & Utility Adjustments

Cost: Varies
What it is: Seller prepays property tax/utilities; you reimburse them for the period after closing.

Moving Costs

Cost: $500-$2,000+
Includes: Movers, truck rental, packing supplies, storage if needed.

Home Insurance

Cost: $1,000-$2,000/year
When required: Lenders require proof of insurance before closing.

Example: $600,000 Home in Mississauga

• Legal fees: $2,000
• Ontario LTT: $8,475 (minus $4,000 first-time buyer rebate = $4,475)
• Home inspection: $500
• Appraisal: $400
• Title insurance: $300
• CMHC insurance (10% down): $16,740 (added to mortgage)
• Adjustments: $1,500
• Moving: $1,000
• Home insurance: $1,500
• Total cash needed at closing: ~$11,675

Tips to Reduce Closing Costs

• Shop around for legal services (but don't sacrifice quality)
• Negotiate home inspection into offer (seller pays)
• Bundle title insurance with legal fees for discount
• Close mid-month to reduce adjustment period
• Save 20% down to avoid CMHC insurance

Mini-FAQ

Q: Can I roll closing costs into my mortgage?
A: Only CMHC insurance can be added to the mortgage. All other costs must be paid in cash at closing.

Q: When do I pay closing costs?
A: Your lawyer will provide a statement of adjustments 1-2 weeks before closing. You wire funds to their trust account.

Q: Are closing costs tax-deductible?
A: Not for your primary residence. For investment properties, some costs (legal, appraisal) can be deducted or added to cost base.

Mortgage Insurance: What You Need to Know

If your down payment is less than 20%, you'll need mortgage insurance (also called CMHC insurance). It protects the lender if you default—and it's added to your mortgage balance.

What is Mortgage Insurance?

Mortgage insurance is required for "high-ratio" mortgages (down payment less than 20%). It's provided by three insurers in Canada: CMHC (Canada Mortgage and Housing Corporation), Sagen (formerly Genworth), and Canada Guaranty.

How Much Does It Cost?

Premiums range from 0.6-4% of the mortgage amount, depending on your down payment:

Down Payment	Premium	Example ($400k mortgage)
5-9.99%	4.00%	$16,000
10-14.99%	3.10%	$12,400
15-19.99%	2.80%	$11,200
20%+	0% (not required)	$0

How It Works

The premium is added to your mortgage balance (you don't pay it upfront). You pay interest on it over the life of your mortgage. Example: $400,000 mortgage + $16,000 premium = $416,000 total mortgage.

Who Pays for It?

You do (the borrower), even though it protects the lender. It's a one-time fee added to your mortgage at closing.

CMHC vs Sagen vs Canada Guaranty

All three insurers offer similar products and premiums. Your lender chooses which insurer to use based on their relationships and approval criteria. You don't get to pick.

Benefits of Mortgage Insurance

• Lets you buy with as little as 5% down
• Access to lower interest rates (insured mortgages are less risky for lenders)
• Easier qualification (insurers have standardized criteria)
• Portable (if you move, you can transfer the insurance to your new mortgage)

Drawbacks

• Adds thousands to your mortgage balance
• You pay interest on the premium over 25-30 years
• Protects the lender, not you (you still lose your home if you default)

Mortgage Insurance vs Mortgage Life Insurance

Mortgage Insurance (CMHC): Protects the lender if you default. Required for high-ratio mortgages.
Mortgage Life Insurance: Pays off your mortgage if you die. Optional, sold by banks and insurance companies.

Can You Avoid Mortgage Insurance?

Yes, by putting down 20% or more. This is called a "conventional" mortgage. You'll avoid the premium but may face slightly higher interest rates (uninsured mortgages are riskier for lenders).

Example: $500,000 Home Purchase

Scenario 1: 5% down ($25,000)
Mortgage: $475,000
CMHC premium (4%): $19,000
Total mortgage: $494,000
Monthly payment (5.5%, 25yr): ~$3,050

Scenario 2: 20% down ($100,000)
Mortgage: $400,000
CMHC premium: $0
Total mortgage: $400,000
Monthly payment (5.5%, 25yr): ~$2,470

Mini-FAQ

Q: Can I pay the CMHC premium upfront instead of adding it to my mortgage?
A: Yes, but most buyers add it to the mortgage to preserve cash for closing costs and emergencies.

Q: Is the CMHC premium refundable?
A: No. Once paid, it's not refundable even if you pay off your mortgage early.

Q: Can I remove CMHC insurance if my home value increases?
A: No. Once insured, always insured (for that mortgage). You'd need to refinance to remove it.

Mortgage Renewal: Don't Just Sign!

Your mortgage renewal is one of the best opportunities to save money—but most people just sign the letter their bank sends. Here's how to approach renewal strategically.

When Does Renewal Happen?

Your mortgage term (typically 1-5 years) ends, but your amortization continues. You'll receive a renewal letter 30-120 days before maturity offering a new rate and term.

The Problem with Renewal Letters

Banks often offer higher rates to existing customers than new ones (they're betting you won't shop around). You're not locked in—you can switch lenders at renewal with no penalty.

Questions to Ask Before Signing

1. Is this the best rate available?
Compare your renewal rate to what new customers are getting. Check online, call Stephanie, and get quotes from 2-3 lenders.

2. Should I switch lenders?
Switching at renewal is free (no penalty, no appraisal typically). If another lender offers 0.25%+ lower, it's worth switching.

3. Fixed or variable?
Fixed rates offer stability; variable rates are typically lower but can fluctuate. Consider your risk tolerance and rate outlook.

4. What term length makes sense?
Shorter terms (1-3 years) offer flexibility; longer terms (5 years) offer stability. Consider your plans (moving, refinancing, paying off early).

5. Can I increase my payment or make lump sums?
Most mortgages allow 10-20% annual prepayments. If you expect bonuses or raises, ensure your new mortgage allows this.

6. Should I refinance instead of renewing?
If you need to access equity, consolidate debt, or remove a co-borrower, refinancing (breaking early) might make sense. Compare penalty vs. benefits.

Example: Mississauga Homeowner

John's bank offers 5.5% at renewal. He calls Stephanie, who finds 4.9% with another lender. On a $400,000 mortgage, that's $200/month savings ($2,400/year, $12,000 over 5 years).

How to Negotiate a Better Rate

• Get quotes from 2-3 lenders (use Stephanie as your broker)
• Call your current lender and ask them to match or beat
• Be willing to switch if they won't negotiate
• Don't wait until the last minute (start 90 days before maturity)

Switching Lenders at Renewal

Pros:

• No penalty (you're at maturity)
• No appraisal typically
• Legal fees often covered by new lender
• Access to better rates and terms

Cons:

• Paperwork (income verification, credit check)
• May lose features (e.g., HELOC, skip-a-payment)
• Takes 2-4 weeks to process

Early Renewal: Worth It?

Some lenders let you renew 120-180 days early to lock in a rate. Pros: rate protection if rates are rising. Cons: you restart your term (lose time on amortization).

What If You're Planning to Move?

Choose a portable mortgage (most are) or a shorter term (1-3 years) to avoid penalties when you sell.

Red Flags in Renewal Offers

• Rate is 0.5%+ higher than advertised rates
• Pressure to sign quickly ("offer expires in 48 hours")
• Reduced prepayment privileges
• Collateral charge (harder to switch later)

Mini-FAQ

Q: Can I switch lenders if I have a HELOC?
A: Yes, but you'll need to pay off or refinance the HELOC. Some lenders offer combined products.

Q: What if I don't respond to my renewal letter?
A: Your mortgage automatically renews at your lender's posted rate (often 1-2% higher than negotiated rates). Don't let this happen!

Q: Can I change my amortization at renewal?
A: Yes. You can shorten it (pay off faster) or extend it (lower payments). Extending requires re-qualification.

Mortgage Glossary: Canadian Terms Explained

Confused by mortgage jargon? Here's a plain-English glossary of common terms you'll encounter.

A

Amortization: The total length of time to pay off your mortgage (typically 25-30 years). Longer amortization = lower payments but more interest paid.

Appraisal: A professional assessment of your home's market value, required by lenders to confirm the property is worth the purchase price.

Assumable Mortgage: A mortgage that can be transferred to a new buyer when you sell (rare in Canada).

B

Blended Payment: A mortgage payment that includes both principal and interest (most common in Canada).

Bridge Financing: Short-term loan to cover the gap between buying a new home and selling your old one.

C

CMHC (Canada Mortgage and Housing Corporation): Federal agency that provides mortgage insurance for high-ratio mortgages (down payment less than 20%).

Closed Mortgage: A mortgage with prepayment restrictions. Breaking it early results in penalties (3 months' interest or IRD).

Collateral Charge: A type of mortgage registration that secures up to 125% of your home's value. Harder to switch lenders but allows future borrowing without re-registering.

Conventional Mortgage: A mortgage with 20%+ down payment (no insurance required).

D

Down Payment: The amount you pay upfront (minimum 5% in Canada). Larger down payment = lower mortgage, no insurance if 20%+.

E

Equity: The difference between your home's value and your mortgage balance. Example: $500k home - $300k mortgage = $200k equity.

F

Fixed-Rate Mortgage: Interest rate is locked for the term (typically 1-5 years). Payments stay the same regardless of market changes.

G

GDS (Gross Debt Service): Housing costs ÷ gross income. Max 39% for most lenders.

Guarantor: Someone who co-signs your mortgage and is legally responsible if you default.

H

HELOC (Home Equity Line of Credit): A revolving credit line secured by your home (up to 65% of value). You pay interest only on what you use.

High-Ratio Mortgage: A mortgage with less than 20% down payment (requires insurance).

I

Interest Rate: The cost of borrowing, expressed as an annual percentage. Lower rate = lower payments.

IRD (Interest Rate Differential): A penalty for breaking a fixed-rate mortgage early. Calculated as the difference between your rate and the current rate, multiplied by remaining term. Can be $10,000-$30,000+.

L

Land Transfer Tax (LTT): Provincial tax on property transfers in Ontario (0.5-2.5% of purchase price). Toronto charges an additional municipal LTT.

Lender: The financial institution that provides your mortgage (bank, credit union, trust company, or private lender).

LTV (Loan-to-Value): Mortgage amount ÷ home value. Example: $400k mortgage on $500k home = 80% LTV.

M

Maturity Date: The end of your mortgage term (when you renew or pay off the balance).

Mortgage Broker: A licensed professional (like Stephanie) who shops multiple lenders to find you the best mortgage.

Mortgage Insurance: Insurance required for high-ratio mortgages (down payment less than 20%). Protects the lender if you default. Provided by CMHC, Sagen, or Canada Guaranty.

N

NOA (Notice of Assessment): CRA document confirming your income for the previous tax year. Required for mortgage applications.

O

Open Mortgage: A mortgage you can pay off anytime without penalty. Rates are higher than closed mortgages.

P

PITH (Principal, Interest, Taxes, Heat): Your total monthly housing costs, used to calculate GDS.

Portability: The ability to transfer your mortgage to a new property without penalty (most mortgages are portable).

Pre-Approval: A lender's commitment to lend you a specific amount at a specific rate (typically held for 90-120 days).

Prepayment Privilege: The ability to pay extra toward your mortgage without penalty (typically 10-20% annually).

Prime Rate: The interest rate banks charge their best customers. Variable mortgages are priced as "prime + X%" or "prime - X%".

Principal: The amount you borrow (excluding interest).

R

Refinance: Breaking your current mortgage and taking out a new one (often to access equity or get a better rate).

Renewal: The end of your mortgage term. You negotiate a new rate and term (no penalty to switch lenders at renewal).

S

Second Mortgage: A separate loan secured by your home, sitting behind your first mortgage. Higher rates (7-12%) but no penalty on first mortgage.

Stress Test: You must qualify at the higher of your contract rate + 2% or 5.25% (benchmark rate). Reduces buying power by ~15-20%.

T

TDS (Total Debt Service): All debts ÷ gross income. Max 44% for most lenders.

Term: The length of time your mortgage rate and conditions are locked (typically 1-5 years). Not the same as amortization.

Title: Legal ownership of a property. Your lawyer ensures the title is clear (no liens, disputes) before closing.

Title Insurance: Insurance that protects you from title defects, fraud, survey issues, and zoning violations ($200-$400 one-time).

V

Variable-Rate Mortgage: Interest rate fluctuates with prime rate. Payments may stay the same (more/less goes to principal) or adjust with rate changes.

Mini-FAQ

Q: What's the difference between term and amortization?
A: Term is how long your rate is locked (1-5 years). Amortization is how long to pay off the mortgage (25-30 years).

Q: What's the difference between pre-qualification and pre-approval?
A: Pre-qualification is an estimate (no credit check). Pre-approval is a commitment (credit check, income verification).

Q: What's the difference between fixed and variable?
A: Fixed rate is locked for the term. Variable rate fluctuates with prime rate (typically lower but riskier).