The problems and solutions around refinancing your mortgage.


Canada’s ever-changing mortgage rules, mortgage slang and lack of education from financial institutions, makes it incredibly hard for borrowers to know what the government and lenders consider to be a refinance. It is also difficult to understand how to differentiate between a refinance and a switch. We believe that it is important to know the difference between the two since they have different terms, conditions and interest rates.

Let’s start by defining a mortgage switch


  • The existing mortgage’s terms & conditions allow it and the new lender allows for mortgages to be switched from the current lender.
  • The borrower is prepared to pay a penalty to break the existing mortgage.
  • The current mortgage’s amortization is maintained on the closing date of the new mortgage.
  • The borrower is satisfied with a mortgage without a Home Equity Line of Credit (HELOC)
  • No equity is taken out and added to the new mortgage. Although it is lender dependent, lenders typically allow up to $3,000 to be added to the new mortgage to cover penalty costs. Any costs over-and-above the $3,000 must be covered by the borrower from their own resources
  • The borrower qualifies for the new mortgage

Switching your mortgage has distinct advantages, such as lower interest rates, etc., however, switches also have limited options that are only available for refinances. Thus, some of our clients choose to refinance so that they can make broader changes to their mortgages.

What about a refinance?


So, now that we know more about switches; when is a mortgage transaction considered to be a refinance and how are refinances different from switches?

Refinances are very similar to switches, but they have a few major differences:

  • Refinances are subject to different mortgage rules which result in borrowers paying slightly higher interest rates
  • Borrowers can take out equity up to 80% of the properties’ value
  • Borrowers can be added to and/or removed from the mortgage
  • The mortgage structure can be changed. For example, adding a HELOC to the mortgage
  • The amortization can be changed up to a maximum of 30 years
  • Many more mortgage products are available for refinances compared to switches
  • With refinances borrowers are responsible for all of the costs to close the new mortgage, unlike switches, where it is common that the new lender pays for the closing costs. For both refinances and switches, borrowers are responsible for the penalty costs around breaking their existing mortgage

There are many benefits to switching or refinancing your mortgage, however, whichever option you choose should solve your problems and ultimately help you to meet your goals. Unfortunately, not all mortgage products are the same and getting into the wrong mortgage may put you at a disadvantage when you try to change or renew your new mortgage in the future.

We can help you to determine what is best for you, ultimately, how to get you mortgage free faster. Once we have met with you and you have decided on a plan, we will do the work to close your mortgage and provide you with an effective roadmap to be mortgage free faster.

We previously chatted around the differences between switches and refinances so that you can make correct decisions about your mortgage. Here, we’re going to explore switching and refinancing solutions that can benefit you.

Let’s talk mortgage switches.


Switching your mortgage is a way of optimizing your circumstances to protect you against risks and put you in the best possible position to pay off your mortgage faster.

Here are three very good reasons to break and switch your mortgage:

There is no good reason why anyone should be paying more for their mortgage than what is available in the market. If the savings from an interest rate reduction exceed the costs from breaking the existing mortgage, it may be time for you to switch your mortgage. Because mortgage penalties typically increase as interest rates decrease, it is essential that your mortgage is with a lender with lower mortgage penalties.

If your existing mortgage is not meeting your goals, you may be able to switch to a mortgage with better terms and conditions. The next time you get a mortgage, intentionally focus on the right mortgage, not just the interest rate. The lowest interest rates typically associated with less-than-best terms and conditions.

If you are concerned with interest rate trends or you are planning for a life event you may want to break your mortgage and renew your mortgage early for a new five-year term. Your peace of mind and potential savings may be worth the penalty you will incur from breaking the existing mortgage.

It is really important to know that not all lenders will allow you to switch your mortgage to a different lender or even refinance your mortgage with the same lender, even if you are prepared to pay a penalty. Some lenders have penalties that are so high that the costs to move the mortgage is higher than the savings from the new mortgage. To avoid this from happening to you, let us guide your switch to the right mortgage product.

Now for refinances.


We believe our clients are better off when they are mortgage free faster.

The best way to become mortgage free faster is to take a healthy, affordable mortgage and to drive it down responsibly with accelerated payments. However, sometimes life happens to us and we need to deal with those problems. Or, some of us may want to leverage the equity in our homes for various reasons. During these times refinancing can be a very useful tool in helping you achieve your goals.

Here are a few examples of how our clients refinance their mortgages:

Young couples may refinance to temporarily lower their mortgage payments while their household income is reduced (due to one parent being off work as the primary caregiver of their children).

Entrepreneurs may refinance before they start a new business so that their mortgage payments are lower, while their business income is below their anticipated future income. Once their income is stable again, they can resume their mortgage-free plans.

Rental property owners may refinance to lower their mortgage payments to improve their property’s cash flow and improve its profitability.

Refinancing allows borrowers to restructure their mortgages into different components, add or remove a Home Equity Line of Credit (HELOC) or interest-only loan, for example.

Adding a HELOC has certain advantages such as the ability to plan for anticipated future expenses. However, most of our clients choose mortgages without HELOCs, because HELOCs are a major deterrent to becoming mortgage free faster and due to their limited mortgage options when the mortgage reaches the maturity date.

Refinancing is ideal for investors who want to leverage the equity in their properties to purchase other properties or invest in non-real estate plans. Borrowing equity from your home to invest may have significant income tax advantages.

Some of our clients take out equity from their homes to create and invest as an emergency fund instead of relying on a HELOC as their emergency fund.

Borrowing money from your home to enhance your home’s value may be a legitimate strategy for some.

The question whether it is a good idea to use the equity in your home to consolidate debt is an age-old debate.

We believe it is a legitimate strategy and even a good strategy in the following cases:

– To avoid financial catastrophe such as bankruptcy etc. as long as the borrowers understand what caused the financial difficulties and these problems can be rectified long-term
– If borrowers only service their debt interest and don’t have financial traction to pay down the debt principal. Not dealing with a situation like this can end up in financial catastrophe, which should be avoided
– Paying off debt to improve cashflow

Whether consolidating debt in your mortgage is a good idea or not depends on the following:

1. Debt consolidation deals with the symptoms of a greater problem. It is essential to understand what caused the debt problem; was it an expense or income problem? Put things in place (a budget, financial coaching, etc.) to avoid the problem from recurring
2. Add a realistic amount of the improved cash flow to the new minimum mortgage payment to counter the effect of adding debt to the mortgage. We have seen clients become mortgage free a lot faster when this is done well. It’s exciting!

To remove or add a person to a mortgage, the mortgage must be refinanced. This can happen when children can qualify for their mortgage by themselves after their parents helped them to purchase their 1st home, or in cases of divorce, etc.

Most people only focus on what it takes to get a mortgage, however, we have trained our clients to focus a lot more on what the consequences and costs would be if they wanted to make changes to the mortgage or leave the mortgage. We will guide your refinance to help you become mortgage free faster.

Thank you for joining us this evening. It is always a pleasure! Keep an eye on our social platforms to see the recording and summary of this webinar.