Refinancing
Quick Definition
Replacing an existing loan with a new one, usually to get a better rate or access equity.
Full Explanation
Refinancing means replacing your existing mortgage or loan with a new one, typically to secure a lower interest rate, change the loan term, switch from variable to fixed rate, or access built-up home equity. In Canada, refinancing before the end of your mortgage term typically triggers a prepayment penalty — either 3 months' interest (for variable-rate mortgages) or an Interest Rate Differential (IRD) penalty (for fixed-rate mortgages, often much larger). Refinancing at renewal (when the term ends) incurs no penalty and is the most cost-effective time to restructure.
Related Terms
Mortgage
A secured loan used to purchase real estate, with the property as collateral.
Home Equity
The portion of your home's value you actually own, free of mortgage debt.
Loan Term
The length of time you agree to specific loan conditions before renewal.
Prepayment Penalty
A fee charged by lenders when you pay off or break a mortgage before the term ends.
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