What "break-even" means for a refinance
Refinancing mid-term costs money up front (break penalty, appraisal, legal fees, sometimes lender fees). It saves money over time (lower rate produces lower monthly interest). The break-even point is when the cumulative savings have offset the cumulative costs. Refinancing past your break-even is net positive. Refinancing without reaching break-even is net negative.
The four costs of refinancing
- Break penalty. Usually the biggest cost. Higher of 3 months' interest or IRD for fixed mortgages. See our prepayment penalty calculator.
- Appraisal. $350-$500 for the new lender to confirm property value.
- Legal fees. $800-$1,200 to discharge the old mortgage and register the new one. Some lenders cover this via cash-back offers.
- Title insurance. $250-$400. Sometimes transferable from the original purchase, sometimes not.
The savings side
If the new rate is 0.5% lower than your current rate, the monthly savings on a $600K mortgage are roughly $170-$200. At $200/month savings and a $10K total refinance cost, the break- even is 50 months — over four years. If the rate spread is 1%, savings are roughly $400/month, break-even drops to 25 months, which is well inside a 5-year term.
When refinancing makes sense
Three scenarios where the math usually works. First, a meaningful rate drop (1%+) and you have several years remaining on your amortization. Second, you're switching from a high-cost B-lender or private lender to an A-lender at materially better terms. Third, you're combining a refinance with debt consolidation (a cash-out refinance), in which case the savings from rolling high-interest debt into the mortgage can dwarf the refinance cost.
When refinancing rarely makes sense
Rate drop under 0.5% almost never breaks even. Within the last 12 months of your term, wait it out and renew without penalty. On a variable-rate mortgage, the 3-months-interest penalty is usually low enough that the math works at smaller rate spreads, but check before committing.
How to use this calculator
Plug in your current balance, current rate, new offered rate, estimated break penalty, and other refinance costs (appraisal, legal, title). The calculator returns months to break-even and total savings over the remaining amortization. Book a 20-minute chat with the FRIVE team if you want a second opinion on a specific refinance scenario.
Frequently asked questions
How do I get an exact break penalty number?
Call your current lender. They'll quote the exact penalty as of a specific date. The quote is usually valid for 30-60 days.
Can I refinance with the same lender to avoid the penalty?
Most lenders charge the penalty even on internal refinances. Some offer a "blend and extend" option that avoids the penalty — see our blended rate calculator.
What's a cash-out refinance?
Refinancing for more than the current mortgage balance, taking the difference in cash. Limited to 80% loan-to-value in Canada for federally regulated lenders. Useful for renovations or consolidating high-interest debt.
Can I include the refinance costs in the new mortgage?
Sometimes. Some lenders allow break penalty and legal fees to be rolled into the new mortgage if the new LTV permits. Most federally regulated lenders cap this at 80% LTV.
Does refinancing affect my credit score?
Slightly. The hard credit check at the new lender's application causes a small temporary dip. Within 90 days, multiple mortgage applications count as one inquiry for credit-bureau purposes.
How long does a refinance take?
Typically 30-60 days from application to funding. Faster if you've already gathered documentation. Slower if the appraisal comes back contentious or the lender requires additional underwriting.
Should I lock my new rate during the refinance process?
Yes. Most lenders hold the new rate for 90-120 days while the application processes. Without a hold, your rate could move before funding.
What if rates drop again after I refinance?
Then you'd refinance again. The penalty math repeats. Each refinance has its own break-even calculation. Serial refinancing only makes sense if each move clears its own break-even comfortably.
Can a credit union refinance avoid the federal stress test?
Provincially regulated credit unions are not bound by OSFI's B-20 stress test. If you fail the federal qualifying-rate test for refinance, a BC credit union may still approve. The new lender's own rate is what matters for the break-even math.
Does refinancing reset my amortization?
Not automatically. You can keep the same amortization, shorten it, or extend it (up to 30 years on uninsured at most lenders). Shortening accelerates pay-down; extending lowers the monthly but costs more total interest.
Sources
- Financial Consumer Agency of Canada — Refinancing your mortgage. canada.ca/fcac/refinance-mortgage
- OSFI Guideline B-20 — Stress test applies to refinances at federally regulated lenders. osfi-bsif.gc.ca
