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Closing costs often get overlooked in the mortgage refinance process. Unlike the closing costs of a house purchase mortgage, most of the closing costs for refinance mortgage transactions are deducted from the loan amount. Your cashout is net of the closing expenses.
Mortgage Refinancing is not free. It costs money to refinance your mortgage. Some mortgage refinancing costs you should expect are lawyer fees, appraisal fees, and possibly lender fees.
This guide provides you with the basic mortgage refinancing costs you should know.
You need to know your credit classification to understand how much it will cost you to refinance your mortgage. There are three broad credit classification groups – Prime Mortgage, Alternative Mortgage, and Private mortgage.
Typical prime mortgage clients for refinancing have a credit score of 620 and over, an excellent repayment history for the past two years, a low debt ratio, a well-established credit profile, and a conformable income. Expect to spend 1% of the loan amount to refinance the mortgage.
The typical refinance client for an alternative, or b-mortgage lender will have a credit score of 550 to 620, own property in a marketable neighbourhood has a debt ratio of 50 and lower, and a loan to value ratio of 80% and lower. Mortgage refinance with an alternative lender will cost approximately 2% to 3% of the mortgage loan amount.
Private mortgage clients will have a credit score of below 550, property in a marketable neighbourhood, and an acceptable loan-to-value ratio. Generally, they can expect to spend 5% to 8% of the loan on average for the refinance cost with a private lender.
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Most fees are deducted from the mortgage loan amount. There are a variety of these fees.
An unbiased appraisal report from a licensed appraiser is key to any mortgage refinance transaction. This report states the market value of your mortgage, offers valuable comparative analysis, and comments on the marketability of your property.
Even though you pay for this report, it is not meant for you. You will often not even see it as the completed report is sent directly to your lender.
Because the report is critical in determining how much loan a lender is willing to offer at your property’s value, lenders typically have an approved list of Licensed Real Estate Appraisers from which to select.
An appraisal fee is one of those upfront fees you have to pay out of pocket. If required, you will incur this cost whether the mortgage loan ends up funding or not.
The amount you pay for the appraisal depends on where the property is located, the size, the number of units, and if the property has a rental component.
The fee usually ranges between CA$225 – CA$700, with the average cost pegged at CAS$480.
The inspection fee is what you will pay for an inspection report. Like an appraiser report, a Licensed Home inspector inspects your property for any structural issue.
An inspection report is not often required for a residential mortgage refinance. The lender might request an inspection report if the appraiser requests it or comments negatively about the property structure in the appraisal report. The cost of inspection runs between CA$175 – CA$350. The average cost most often goes to CA$255.
Private and alternative mortgage lenders charge origination fees as compensation for processing your mortgage loan application. The fee covers the underwriting and upfront administration cost for originating the mortgage loan.
In Canada, these fees are charged only by private and alternative mortgage lenders. The fee for an alternative mortgage loan is usually 1% of the loan amount, while it is 2% – 6% for a private mortgage loan.
In Canada, you are required to have a licensed real estate lawyer represent you in any mortgage transaction.
Your lawyer will verify your identification, verify the Title, and discharge the payments to the different parties of the transaction. The lawyer is also required to help you understand the legality of the mortgage refinance transaction.
On average, you should expect to pay between $1,200 to $2,500.00 in lawyer fees.
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This is the fee you pay to the Title company.
A title company does the required ownership Title searches and verifications. In most cases, the Title company also provides Title Insurance for the transaction.
Becoming a licensed homeowner in Canada will be tough without a title company behind the scenes.
One of the major players in the Title space in Canada is First Canadian Title (FCT). FCT clients include Canada’s top banks, national lending institutions, and credit unions. You will see a line item FCT fee on your trust ledger statement. FCT usually charges about $300 for service
On the other hand, private lenders have an in-house lawyer who handles the title functions for a flat fee of $1,800.00 to $2,500.00.
An origination system fee is charged to you. The origination system is the software mortgage professionals (brokers and agents) use to submit mortgage applications to lenders.
In Canada, many lenders subscribe to mortgage loan origination systems for convenience and ease of communication.
You will have to go to the lender directly to escape this fee. But to enjoy greater access to different mortgage loans and lower rates and guidance, you’ll need to work with a mortgage broker and possibly incur this fee.
The fee is approximately $170 plus tax.
There are software systems that real estate lawyers subscribe to help streamline the closure of mortgage transactions. One of these systems is FCT Lender Connect. The fee for this system is charged as a percentage of the loan amount.
Mortgage Industry experts believe that the cost of refinancing a mortgage can be huge if the entire process is not assessed carefully. Hence, it is recommended that homeowners trying to refinance their mortgages consider various offers from lenders and banks.
If possible, consult mortgage brokers to get the best deals while comparing all the costs and calculations involved before deciding. It is advisable to bargain with the lender or bank to reduce or even waive part of the closing costs.