Mortgages · Refinance
Refinancing breaks a contract: the penalty decides if it is worth it.
Leaving a term early costs a penalty, calculated differently on a fixed or a variable rate. That is the first number to get.
What this page covers
The points to look at
- 01Three months' interest or interest rate differential: two formulas, very different results.
- 02What refinancing lets you do: consolidate, renovate, free up cash.
- 03The share of the property value a refinance cannot exceed.
Refinancing: what you really pay
| Item | What it changes | What to check |
|---|---|---|
| Exit penalty | Breaking a term in progress costs three months’ interest or the rate differential, per the contract. | The exact amount, in writing, before you decide. |
| Refinancing costs | Appraisal, notary, discharge: they cut into the rate savings. | The full list of costs and who pays them. |
| New amount borrowed | Taking equity out raises the debt and the repayment time. | What the money is for, and for how long. |
| Break-even point | The monthly saving has to exceed the costs before refinancing pays off. | How many months to recover the costs. |
Ask before you refinance
- 1.What does leaving my current contract cost, as calculated by my current lender?
- 2.What fees does the new lender add, and which are refunded?
- 3.Does the break-even calculation include the penalty?
- 4.Is there a cheaper option, such as a home equity line of credit?
Guides
Read next
// Mortgages
Refinancing to Consolidate Debt: Calculate the True Cost
Add up the penalty, appraisal, notary and new charges before concluding that a refinance lowers the cost of your debts.
// Mortgages
Breaking a Mortgage: Penalty, Savings and Break-Even Point
Compare the exit penalty with the actual interest savings and calculate the break-even point before breaking your mortgage.
// Mortgages
Home Equity Line of Credit: Flexibility and Risks
Separate the available limit from the amount actually borrowed and measure how a variable rate affects the minimum payment.
Frequently asked
What people ask most
Only if the total new cost, penalty, appraisal, notary and fees included, stays below your current interest. A lower rate stretched over 25 years can cost more in total interest than a high rate repaid in three. Compare in dollars, over the same period.
Put numbers on your decision
Open the calculatorsFor information only: not an approval, and not a rate offer.
A question about your situation?
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