You signed up for a mortgage when your credit score wasn’t at its peak, now you are qualified for a new mortgage with a much lower rate. You are thinking about switching your mortgage. You did that dashing home reno and hundreds of thousands of dollars appeared your line of credit now you want to consolidate everything into a new mortgage so you can pay less each month. Your broker or financial advisor suggested refinance. You are ecstatic by the low mortgage rate, but what is the catch?
Sometimes, the lender only focuses on the saving that the new mortgage can potentially generate. But there are a few fees that you wish to be aware of before you agree to a refinance.
1. Mortgage Prepayment Penalty
If your refinance requires you to break your mortgage early, usually the current lender charges a mortgage prepayment penalty. If you have a fixed rate mortgage, your prepayment penalty will be the greater of:
Three months’ interest or
The interest rate differential (IRD).
If the interest rate is variable, the penalty will be 3 months’ interest. Each lender may calculate these amounts in a different way. You need to consult your financial advisor to find out how much prepayment penalty you will have to pay.
2. Mortgage Discharge Fee
If you are switching lenders, you’ll need to pay a fee to discharge your mortgage from your current lender. Depending on the lender and the jurisdiction, the mortgage discharge fee can go up to a few hundred dollars.
3. Mortgage Registration Fee
In order to register the new mortgage, there is a fee of approximately $ 76 charged by the lender.
4. Legal Fees
Depending on the mortgage size and the law firm, the legal fees vary, but usually ranging from a few hundred to a few thousand dollars.
One thing that most clients may not be aware of is that they are also responsible for their current lender’s legal fees in the mortgage discharge process. This again can vary greatly and are out of control of your lawyer who represents you in your refinance.
5. Lender Fee
This is a fee charged by the lender in order to lend you the funds. This fee can vary greatly depending on the lender.
6. Broker Fee
If you are working with a broker, this fee is charged by your broker who connected you with the new mortgage provider. Different brokers may have their own way of calculating the broker fees, but usually you should expect a few thousand dollars going towards your brokerage.
This is a non-exhaustive list of all the potential fees that you have to potentially bear in a refinance. However, lenders may offer discount in order to retain a client or attract new business. Regardless, depending on the rate you can secure, a refinance can potentially still save you thousands of dollars despite the one-time fee you have to pay out of your own pocket. As a result of the above-noted fees, if your new mortgage amount is not sufficient to cover all the fees, you need to prepare to set aside a sum of funds to cover the potential shortfall before funding. Please consult one of our experienced Real Estate Lawyer today for more information.
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