A refinance replaces one mortgage with another. The existing charge must be discharged from title and the new charge registered in its place, and that work is completed through a lawyer's office. The discharge and the new registration are submitted together, so the new lender's security takes effect as the former lender is paid out.
The state of the title determines how straightforward a refinance will be. An old mortgage that was never discharged, a lien, or an unpaid tax balance will stop a lender from advancing funds until it is resolved.
Foote Law acts for homeowners refinancing residential property from its offices in Orangeville and Fergus and throughout Ontario.
Foote Law handles every stage of a residential refinance, from review of the lender's commitment through to registration and disbursement of funds:
Call Foote Law in Orangeville at (519) 940-8309 or in Fergus at (519) 772-6139 to inquire about our services. Foote Law serves clients in Orangeville, Fergus, Brampton, Shelburne, Alliston, Barrie, Owen Sound, Newmarket, Guelph, Centre Wellington, and throughout the Greater Toronto Area, in person and virtually.
These three transactions are treated differently, and the difference decides whether a borrower must requalify and whether a penalty arises.
A renewal continues the existing mortgage with the same lender for a new term. A straight switch moves the same balance and the same amortization to a different lender, without increasing the loan. A refinance changes the mortgage itself, usually by increasing the amount borrowed against the property.
The lender issues a commitment and sends instructions to the lawyer acting on the file. From that point the work runs in a fixed sequence:
Under the guidelines that federally regulated lenders apply, a homeowner can generally refinance up to 80% of the appraised value of the property, less the outstanding balance of the existing mortgage. A lender will usually require an appraisal to establish that value.
A re-advanceable home equity line of credit is subject to a lower limit. The revolving portion is capped at 65% of the value of the property, although total borrowing across the mortgage and the line of credit can reach 80%.
A refinance requires the borrower to qualify at the minimum qualifying rate, commonly called the stress test. Under the federal guidelines applying to banks and other federally regulated lenders, that rate is the higher of the contract rate plus 2% or 5.25%.
The requirement does not apply to every transaction:
Each of those changes makes the transaction a refinance, and full qualification applies.
Breaking a mortgage before its maturity date usually triggers a penalty, and the method of calculation depends on the type of mortgage.
On a fixed-rate mortgage, the penalty is the higher of three months' interest or the Interest Rate Differential. The differential compares the contract rate to current rates over the remaining term, and where rates have fallen, it can amount to thousands of dollars.
On a variable-rate mortgage, the penalty is three months' interest.
The Interest Act requires the calculation method to be set out in the mortgage contract. No prepayment penalty arises where the refinance is completed at the maturity date rather than mid-term.
A lender will not advance funds against a title carrying a competing claim.
Where one spouse buys out the other's interest in the home, the refinance and the transfer of title are completed together.
A spouse who comes off title is not released from the mortgage by that transfer. The obligation to the lender ends only when the mortgage is paid out or the lender agrees to a release, so a departing spouse who is removed from title while remaining on the loan continues to carry the debt.
Each spouse requires independent legal advice, which means separate counsel; the lawyer acting on the refinance cannot advise both.
No land transfer tax is payable on a refinance, because ownership does not change. The tax applies to a transfer of title, not to the registration of a new charge.
Where the title changes at the same time as the refinance, as on a separation, land transfer tax may apply to that transfer, and any available exemption should be confirmed before registration.
A refinance turns on the lender's commitment, the state of the title, and the cost of breaking the existing mortgage. Each of those is settled before closing, and a problem found late can delay an advance or cost a borrower the rate they were offered.
