Refinancing can genuinely improve your financial position, lower rate, extra cash, consolidated debt, but it's also easy to get wrong. Here are the mistakes we see most often, and the myths behind them.
Myth: Refinancing Is Free
It isn't. If you're breaking your mortgage mid-term, expect a prepayment penalty (calculated as either an interest rate differential or three months' interest, whichever your lender's fine print specifies), plus an appraisal fee and legal fees. None of this means refinancing is a bad idea, it just means the penalty needs to be weighed against the actual savings, not ignored.
Mistake: Not Running the Breakeven Math
Before refinancing to chase a lower rate, calculate how many months of savings it actually takes to cover the penalty and closing costs. If you're planning to move or sell within that breakeven window, the refinance may not be worth it regardless of how attractive the new rate looks.
Myth: You Need 20% Equity to Refinance
You need at least 20% equity remaining after the refinance, since Canadian rules cap refinancing at 80% loan-to-value. If you have more equity than that, you're not limited to exactly 20%, that's simply the maximum amount of equity you're allowed to access through a refinance.
Mistake: Consolidating Debt Without a Spending Plan
Rolling high-interest credit card debt into your mortgage lowers your monthly payment, but it also stretches that debt across your remaining amortization, sometimes 20+ years. Without a plan to actually pay it down faster than the minimum, or to stop re-accumulating new debt, you can end up paying more in total interest over time despite the lower rate. See our full debt consolidation guide for the honest trade-offs.
Mistake: Not Checking Whether a "Blend and Extend" Is Available First
Some lenders offer a blend and extend option at renewal or mid-term, blending your existing rate with today's rate for a new, longer term, without triggering a full penalty. It's not always the best deal compared to a full refinance, but it's worth asking about before assuming you have to pay a penalty to access a better rate.
Mistake: Assuming Your Refinance Rate Will Match Your Bank's Advertised Rate
Refinancing triggers full requalification, stress test included, and your specific rate depends on your credit, the loan-to-value after the refinance, and the purpose of the funds. The rate on your bank's website is a starting point, not a guarantee.
Mistake: Not Shopping the Refinance Around
Your current lender already has your business and doesn't have much incentive to give you their sharpest rate on a refinance. Comparing across lenders, which is exactly what an Ottawa mortgage agent does for you, routinely turns up a better rate or lower fees than what your existing bank offers first.
Thinking About Refinancing?
We'll run the real breakeven math, penalty included, before you commit to anything. Talk to Sean first.