Below are answers to common questions about refinancing a mortgage in British Columbia, including costs, timing, and lender requirements.
Fixed-rate mortgages have an interest rate that remains the same for the entire term of the mortgage. This provides payment stability and makes budgeting easier, as your regular mortgage payments will not change during the term.
Variable-rate mortgages have an interest rate that can fluctuate over the term based on changes to the lender’s prime rate. Depending on the mortgage product, changes in interest rates may affect your payment amount or the portion of each payment applied to interest and principal.
Variable-rate mortgages often have lower initial interest rates than fixed-rate mortgages, but they involve greater uncertainty. Some variable-rate mortgages offer fixed payments, while others adjust payments as interest rates change.
The choice between a fixed-rate and variable-rate mortgage depends on your financial situation, risk tolerance, and future plans. Your lender can explain how your specific mortgage product works, and your Notary will review the legal terms of the mortgage as part of the refinancing process.
Closed-term mortgages are typically suitable if you do not plan to pay off or refinance your mortgage before the end of the term. Interest rates for closed mortgages are generally lower than for open mortgages. While closed mortgages usually allow some limited prepayment options, paying out the mortgage early may result in a prepayment penalty.
Convertible mortgages offer many of the benefits of a closed mortgage but with added flexibility. A convertible mortgage can be converted to a longer closed term at any time without a prepayment penalty. This option is often used when a borrower wants flexibility in the short term but expects to lock into a longer term later.
Open-term mortgages may be appropriate if you plan to pay off or refinance your mortgage in the near future. Open mortgages can be repaid, in whole or in part, at any time without prepayment penalties. Because of this flexibility, interest rates for open mortgages are typically higher than those for closed mortgages.
Your mortgage must be default insured when you borrow more than 80% of the property’s appraised value or purchase price (whichever is lower).
In Canada, default mortgage insurance is provided by one of the approved insurers:
Canada Mortgage and Housing Corporation (CMHC)
Sagen™ (formerly Genworth Canada)
Canada Guaranty
In some circumstances, a lender may still require default mortgage insurance even where the loan-to-value ratio is 80% or less. This may depend on the lender’s internal policies, the type of mortgage transaction, or the borrower’s overall risk profile.
In addition to the default insurance premium, insured mortgages are subject to specific terms and restrictions that do not apply to conventional (uninsured) mortgages. These restrictions may affect refinancing options, amortization periods, and prepayment rights.
Your Notary will review these implications with you as part of the mortgage or refinancing process.
The Interest Adjustment Date (IAD) is the date on which the lender first begins calculating interest on your mortgage.
Unlike rent, mortgage interest is paid in arrears. This means that when you make a mortgage payment, you are paying interest that has already accrued during the previous payment period.
Your first regular mortgage payment is due after the first full payment period following the Interest Adjustment Date. For example, if you make monthly payments, your first mortgage payment will be due one month after the IAD. If you make weekly payments, your first payment will be due one week after the IAD.
If your mortgage advances before the Interest Adjustment Date, the lender will collect interim interest. This is the interest that accrues from the date the mortgage funds are advanced up to (but not including) the Interest Adjustment Date.
Interim interest is typically collected at closing and is separate from your regular mortgage payments.
What is the difference between amortization and term in a mortgage?
Amortization is the total length of time it would take to fully pay off a mortgage, assuming regular payments of principal and interest are made as scheduled. In Canada, amortization periods are commonly up to 25 or 30 years, depending on the mortgage and lender.
The term of a mortgage is the length of time during which a borrower is committed to a specific interest rate and set of mortgage terms. The term is usually much shorter than the amortization period and commonly ranges from one to five years, although other terms are available.
At the end of a term, the mortgage is usually not fully paid off. Instead, the remaining balance is typically renewed with the same lender, refinanced, or paid out, and a new interest rate and term are established.
Mortgages may be open or closed, regardless of whether the interest rate is fixed or variable.
Variable rate mortgages can be either open or closed. If a variable rate mortgage is closed,
the prepayment penalty is typically limited to three months’ interest.
Fixed rate closed mortgages usually have stricter prepayment limits. Some include prepayment privileges,
such as lump-sum payments or increased regular payments, but these vary by lender and by mortgage product. If payments exceed
the permitted limits, a prepayment penalty may apply.
Fixed rate closed mortgages usually have stricter prepayment limits. Some include prepayment privileges,
such as lump-sum payments or increased regular payments, but these vary by lender and by mortgage product. If payments exceed
the permitted limits, a prepayment penalty generally applies.
What does it mean to port or transfer a mortgage?
The terms “porting” a mortgage and “transferring” a mortgage are often used interchangeably. However, they can be misleading because they suggest that an existing mortgage is simply moved from one property to another.
In practice, a mortgage is not directly transferred from one property to a new property.
When a mortgage is ported, the existing mortgage is paid out and discharged from title to the original property, and a new mortgage is registered against the new property. The lender may allow the borrower to carry forward the existing mortgage terms, such as the interest rate and remaining term, subject to the lender’s rules.
Not all mortgages are portable. Portability depends on the lender, the mortgage product, the timing of the sale and purchase, and the borrower continuing to qualify.
Paying out a mortgage and prepayment penalties
If you pay out a mortgage before the end of its term, the lender may charge a prepayment (payout) penalty.
Whether a penalty applies depends on whether the mortgage is open or closed, and on the terms of the specific mortgage product.
Porting is most commonly used with closed mortgages because closed mortgages often have prepayment penalties if they are paid out early.
An open mortgage may also be portable depending on the lender and the mortgage product. However, because open mortgages can usually be paid out at any time without a penalty, porting is less common. In limited cases, a borrower may still wish to port an open mortgage in order to keep a favourable interest rate or terms.
In many porting situations, the existing mortgage is first paid out and a penalty is charged. If the mortgage is successfully ported and the new mortgage is funded, the lender will typically refund the penalty. The refund may occur at the time of funding or after funding, depending on the lender.
Should I pay out or port my mortgage?
You may consider porting your mortgage if you want to keep a favourable interest rate or if paying out the mortgage early would result in a significant prepayment penalty.
You may consider paying out your mortgage if the mortgage is not portable, if the timing of your sale and purchase does not meet the lender’s requirements, if you are changing lenders, or if you are able to obtain a better mortgage with more suitable terms.
Because portability rules, penalties, and refund timing vary, you should confirm these details directly with your lender before making any decisions.
In most cases, we recommend paying your property taxes directly to the municipality rather than through your lender.
While practices vary by municipality, many cities allow property taxes to be paid by way of monthly instalments directly to the municipality. This option is generally not available for rural properties.
When property taxes are paid through a lender, the lender typically collects monthly tax instalments and holds the funds in a tax account. Most lenders reserve the right to apply the funds accumulated in that account toward your mortgage if you miss any mortgage payments.
In addition, some lenders charge administrative fees for managing property tax accounts, which can increase your overall borrowing costs.
For these reasons, paying your annual property taxes directly to the municipality is often the preferred and recommended option, unless your lender requires taxes to be paid through them as a condition of your mortgage.
A collateral mortgage is a type of mortgage where your property is used as security for a loan or line of credit that is documented separately, often by a promissory note or loan agreement.
The funds advanced under a collateral mortgage may be used for a variety of purposes, such as consolidating debt, financing renovations, or making other large purchases, depending on the terms of the loan.
Unlike a traditional “standard charge” mortgage that secures a specific loan amount, a collateral mortgage may secure current and future borrowing up to a registered limit, even if those funds are not advanced all at once.
If the borrower defaults under the loan or credit agreement, the lender may enforce its security against the property, which can include taking legal steps to recover the debt.