A mortgage refinance involves replacing your existing home loan with a brand new mortgage – often to change the terms, interest rate, or borrow additional money – while a mortgage transfer (also known as a mortgage switch) means moving your current mortgage from one lender to another without increasing the loan amount. In other words, refinancing resets your mortgage (you might extend the amortization, change the amount, or alter other terms), whereas transferring keeps your balance and amortization the same, only changing your lender and interest rate.
In Canada, refinancing typically requires that you have enough home equity (usually 20% or more) and can be done at any time – though breaking your mortgage mid-term to refinance will incur a prepayment penalty. By contrast, most mortgage transfers happen at the end of your term (upon renewal) to avoid penalties, and they usually do not involve borrowing extra funds. Many lenders even cover the legal and appraisal fees when you switch to them, making a transfer low-cost or free for the borrower.
What is Mortgage Refinancing?
Mortgage refinancing means taking out a new mortgage to pay off and replace your current one. This can be done with your existing lender or a different lender – in either case, it’s treated like a brand new loan application. Homeowners typically refinance in order to secure a lower interest rate, access home equity, or change their loan terms. For example, you might refinance to pull out equity for a renovation or to consolidate high-interest debt, or to switch from a variable-rate mortgage to a fixed-rate one (or vice versa). You could also refinance to extend your amortization (lowering monthly payments) or shorten it (to pay off the loan faster).
In Canada, there is an important restriction: you generally must have at least 20% equity in your home to do a conventional refinance. This means your new mortgage can be no more than 80% of your property’s current market value. (If you have less equity than that, you likely fall under your original high-ratio mortgage insurance and cannot increase your loan amount until you’ve paid it down or your home value rises.) Refinancing is often used when you need additional funds – a refinance allows you to increase your mortgage principal (within that 80% loan-to-value limit) and take the extra cash for other purposes, something a straight transfer does not permit.
Costs and penalties
Timing matters. You can refinance at the end of your mortgage term with no penalty (since your term is complete). However, if you choose to refinance mid-term, you’ll be breaking your mortgage contract, which usually comes with a prepayment penalty charged by your current lender. This penalty can be significant (often thousands of dollars, depending on how much time is left and whether you have a fixed or variable rate). In addition, there are typically legal fees, discharge fees, and possibly appraisal fees involved in setting up the new mortgage. The new mortgage has to be registered, and the old one discharged. Some lenders offer promotions to help cover or reimburse these refinancing costs, but generally refinancing costs are the homeowner’s responsibility. Always weigh these costs against the potential savings (or cash out amount) to make sure refinancing makes financial sense.
When to consider refinancing
If you want to tap into home equity for big expenses (like home improvements, tuition, or investing), consolidate high-interest debt (rolling it into the mortgage at a lower rate), or dramatically lower your monthly payments (e.g. by scoring a much lower interest rate or extending your amortization), refinancing is likely the route to consider. Just remember that you’ll need to qualify for the new loan (income, credit score, and debt ratios will be evaluated by the lender, just as they were with your original mortgage) and that increasing your loan amount will reset your mortgage insurance status (any new funds cannot be insured and must stay within that 80% LTV limit).
What is a Mortgage Transfer (Switch)?
A mortgage transfer or mortgage switch is when you move your existing mortgage – the balance remaining and the current amortization – from your current lender to a new lender. Unlike a refinance, with a transfer you do notborrow additional money; you’re carrying over the exact same loan amount to a new financial institution. Essentially, the new lender pays out the remainder of your mortgage to your old lender (taking over the debt), and you continue your mortgage with the new lender going forward. The key motivation is usually to get a lower interest rate or better terms from the new lender, or sometimes better customer service, without changing your loan’s size or timeline.
With a switch, your mortgage’s principal and amortization schedule remain unchanged. In fact, one way to remember the difference is: in a refinance, all terms of your mortgage can change (amount, amortization, rate, etc.), but in a transfer, generally only your interest rate and lender change. Because you aren’t increasing the loan or restructuring the length of the loan (beyond possibly choosing a new term length), a transfer is more about securing a better deal on the same obligation. This is ideal if interest rates have fallen or another lender is offering a significantly better rate than your current lender, and you want to save money on interest without taking on new debt.
When and how transfers happen
Most Canadians consider switching lenders at renewal time. When your mortgage term ends (for example, at the end of a 5-year term), you have a chance to renew. At that point, you can renew with your existing lender or transfer to a new lender. Transferring at renewal is cost-effective because you’re not breaking a contract – there’s no penalty to switch at that point. The new lender will still require a mortgage application (you’ll need to qualify under their guidelines similarly to how you did for the original mortgage), and they may need documentation like income verification and a credit check.
If your mortgage was originally insured (you had less than 20% down and paid for CMHC/Genworth/Sagen insurance), that insurance stays with the mortgage. As a result, some new lenders might not require a new stress test or may streamline the process, since an insured mortgage is generally a lower risk for them. (Always check with the lender or a broker – even with an insured loan, the new lender will assess your current finances, but the existence of mortgage insurance can make switching easier in some cases.)
One of the advantages of a transfer is that the costs are usually minimal for the borrower. It’s common for the new lender to cover the legal fees and appraisal fee (if an appraisal is needed) when you switch to them. Lenders offer this as an incentive to win your business. You should always verify this in advance – ask the new lender if they pay for the costs of discharging your old mortgage and registering the new one. In many cases, transfers are essentially free to you; you might even find promotions like cashback offers when you switch (for example, some lenders offer a few thousand dollars cashback for switching your mortgage to them, as a bonus).
The only out-of-pocket expense might be a small discharge fee from your old lender or a token transfer fee, but again, these can often be covered or reimbursed by the new lender. The process of switching is straightforward: once approved, the new lender’s team works with your lawyer (or notary in Quebec) to handle the paperwork, payout the old mortgage, and transfer the title to them, so you just start making payments to the new lender going forward.
Important
If you attempt to transfer before your term is up (not at renewal), this is effectively the same as breaking your mortgage early. In that case, it’s not a simple “no-penalty” switch – your current lender will charge a penalty for breaking the term, just as in a refinance. So, while you can switch lenders mid-term, it typically only makes financial sense if the interest rate difference is so great that it offsets the penalty, or if you have other reasons to break the mortgage. Otherwise, most people wait until the renewal date to execute a transfer for maximum savings.
Refinance or Transfer: Which Option is Right for You?
Deciding between refinancing and transferring comes down to your goals and financial situation. Ask yourself what you hope to achieve by changing your mortgage, and consider the following factors:
- Do you need to borrow extra money?
If you want to access equity (for renovations, investments, or to consolidate high-interest debt), a refinance is the only option that lets you increase your mortgage balance and cash out that equity. A transfer cannot increase your loan amount – it’s only for moving the existing balance to a new lender. For example, if you have high-interest credit card debt, refinancing into a larger mortgage at a lower rate to pay off that debt could save you money. If you don’t need any additional funds and are mainly rate-shopping, then a transfer will suffice.
- Interest rate savings vs. penalties:
How much lower is the new interest rate you’re seeking, and when does your current term end? If another lender can offer you a significantly lower rate, the savings could be substantial over time. However, if you are still mid-term, remember you’ll face a penalty for breaking your mortgage in a refinance or early switch.
Calculate whether the interest savings outweigh the penalty and any fees. Often, if you’re only a year or less away from renewal, it might make sense to wait and then transfer with no penalty. On the other hand, if rates have dropped drastically or you’re in a variable rate and can refinance to a much better fixed rate (as an example), paying the penalty now could be worth it in the long run. Pro tip: Ask a mortgage broker or use online calculators to compare the cost of the penalty versus the interest saved with a lower rate.
- Equity and qualification:
Do you have enough home equity and a strong financial profile to qualify for a refinance? As mentioned, you’ll typically need at least 20% equity left in the home to increase your mortgage in a refinance. Also, both refinancing and switching involve a new credit application. If your income or credit score has changed negatively since you first got your mortgage, switching lenders (transfer) will require re-qualification and isn’t guaranteed.
If you’re borderline on qualifying, sometimes staying with your current lender (renewing) is easier, since many lenders won’t re-qualify an existing client at renewal if you don’t change the loan. But if you do qualify, either option is open – just note that refinancing into a larger loan often has stricter checks because you’re increasing debt. Make sure your debt-to-income ratio and credit health meet the new lender’s standards for either option.
- Desired changes to your mortgage terms:
Outline what changes you want beyond just the interest rate. If you’re unhappy with your current lender’s service or policies, a transfer can fix that by moving you to a new institution. If you want to change the type of mortgage (say, from a fixed rate to a variable rate, or vice versa) without borrowing more, you might accomplish this with either a transfer (if the new lender offers the product you want) or by refinancing with your current lender into a new term.
If you need to extend the amortization to lower payments, that is effectively a refinance (since extending the amortization beyond what’s left usually involves a new contract). If you want more flexible prepayment privileges or other features, shopping around via a transfer can help, since different lenders offer different terms (for example, some lenders let you prepay 20% lump sum per year vs. others 15%, etc.). Bottom line: For major changes (loan amount or amortization), think refinance; for minor tweaks (rate, term, features) without more money, a switch could suffice.
- Cost considerations:
A straight transfer at renewal is generally low-cost. New lenders often advertise “we’ll pay your switching fees,” which can cover appraisal and basic legal costs. You might still be responsible for a discharge fee from your old lender (usually a few hundred dollars) but some new lenders even reimburse that. In contrast, refinancing costs are usually borne by you as the borrower. That includes legal fees to register the new mortgage, an appraisal fee in many cases, and possibly a mortgage registration fee or title insurance.
These can add up to $800 – $1,500 (sometimes more) in out-of-pocket expenses. However, if you refinance with your current lender, they might reduce or waive some fees (since the transfer-out/discharge isn’t happening). Always ask about fees upfront. If cost is a big concern and you don’t need the extra money from equity, a transfer is appealing because of the typical no-cost setup.
Frequently Asked Questions
What is the advantage of transferring a mortgage to a new lender?
The main advantage of a mortgage transfer is the opportunity to get a lower interest rate or better terms without increasing your debt. By switching to a new lender offering a more competitive rate, you can potentially save thousands in interest over the life of your mortgage. Another benefit is that transfers at renewal often come with minimal upfront cost – many lenders will pay the transfer fees (legal and appraisal) to attract you. Essentially, you keep your loan amount the same but reduce your borrowing costs or get more flexible features by moving to a lender who values your business more.
Can I refinance my mortgage without paying a penalty?
Yes – if you refinance at the end of your current term, there is no penalty because your term has naturally concluded. You’re free to arrange a new mortgage (with your current lender or a new lender) at that point without breaking a contract. However, refinancing before your term is over will usually incur a prepayment penalty from your lender for breaking the mortgage early. The only exception might be if your lender has a special early-renewal offer or blend-and-extend option, but those are essentially different products.
In most cases, to avoid a penalty you should schedule the refinance for when your term is up. If you must refinance mid-term (for example, to take advantage of a much lower rate immediately), be prepared for a penalty – typically three months’ interest or an interest rate differential (IRD) fee, depending on your mortgage type. Always ask your lender what your penalty would be before deciding to refinance early.
Does transferring a mortgage require a down payment or new CMHC insurance?
No, you do not need a new down payment to transfer your mortgage. When you switch lenders, you’re not buying a new home – you’re simply moving the loan, so there’s no “down payment” involved. You also typically do not pay for new mortgage default insurance when transferring. If your mortgage was originally high-ratio and insured by CMHC (or Sagen/Canada Guaranty), that insurance stays with the mortgage even after it moves to a new lender, so you don’t pay the insurance premium again. (The insurance is tied to the loan, not the lender.) Keep in mind, though, that you’ll still need to qualify with the new lender when you transfer – they will check your income, credit, and debt ratio to ensure you can pay the mortgage, just as any lender would for a new loan. But there’s no additional money down or extra insurance cost required on a straight switch.
Is it better to refinance or transfer my mortgage in Canada?
It depends on your needs. Refinancing is better when you need to change the amount of your mortgage or take equity out. If you want to consolidate debt or pull out cash for something big, or you’re looking to dramatically change your payment by extending the loan term, refinancing is the way to go. On the other hand, transferring (switching) is usually best when you are happy with your mortgage amount and just want a better rate or service. For example, if another lender will give you a rate that’s even 0.5% lower, switching could save you a lot in interest and it’s relatively simple at renewal time.
Transferring is also typically low cost compared to refinancing. Many Canadian homeowners actually shop around at renewal and transfer to save money rather than automatically renewing. In short, use a refinance to restructure or borrow more, and use a transfer to get a better deal on the same loan. It’s always a good idea to compare both options (with the help of a broker or financial advisor) because the “better” choice is the one that aligns with your financial goals and offers the most savings after accounting for any fees or penalties.
