Mortgage Purchases and Refinances in Ontario
Key Takeaways: A purchase mortgage finances a new home. A refinance replaces your existing mortgage, often at better terms or to access equity. You can refinance up to 80% of your home’s value. Refinancing makes financial sense when the savings outweigh the penalty to break your current mortgage. Canadian Mortgage Services has been helping Ontario homeowners with purchases and refinances for over 37 years.
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Whether you’re buying your first home, moving up, purchasing an investment property, or rethinking the terms of your current mortgage, the financing piece is where everything comes together. Getting it right can save you tens of thousands of dollars over the life of your mortgage. Getting it wrong means overpaying, and most people never realize it.
Purchase vs Refinance: The Key Differences
| Feature | Purchase | Refinance |
|---|---|---|
| Purpose | Finance a new property | Replace or restructure existing mortgage |
| Max LTV | Up to 95% (insured) | Up to 80% |
| Down Payment | Minimum 5% | Must retain 20% equity |
| CMHC Insurance | Available if under 20% down | Not available |
| Penalty | None (new mortgage) | May apply if breaking existing term |
How the Purchase Process Works
A purchase mortgage is straightforward in concept but has a lot of moving parts. You identify a property, make an offer, and need financing in place before the closing date. The lender evaluates you (income, credit, debts) and the property (value, condition, location) before committing funds.
The smart move is to get pre-approved before you start shopping. Pre-approval tells you exactly how much you can afford, locks in a rate for up to 120 days, and signals to sellers that you’re a serious buyer. For first time buyers, this step is especially important.
Once your offer is accepted and the financing condition is in place, your broker submits the full application. The lender reviews everything, may order an appraisal, and issues a commitment letter once satisfied. Your lawyer then handles the legal closing.
How Refinancing Works
Refinancing means replacing your current mortgage with a new one, usually with different terms, a different rate, or a higher balance to pull out equity. The maximum you can refinance to is 80% of your home’s current appraised value.
For example, if your home appraises at $800,000 and you owe $350,000, you could refinance up to $640,000 (80% of $800,000) and access up to $290,000 in equity. That’s cash in your hand, minus any penalty and closing costs.
When Does Refinancing Make Sense
To lower your rate. If rates have dropped since you locked in, refinancing into a lower rate can save significant money. On a $500,000 mortgage, even a 0.5% rate reduction saves roughly $150 per month, or $9,000 over a 5-year term. Use our refinance savings calculator to check your numbers.
To consolidate debt. Rolling high-interest debts (credit cards at 20%, car loans at 7%) into your mortgage at 4-5% can dramatically reduce your monthly obligations. See our debt consolidation page for detailed examples.
To access equity. Whether for renovations, an investment property down payment, education, or any other purpose, refinancing gives you access to the equity you’ve built.
To change your mortgage structure. Maybe you want to switch from variable to fixed for payment certainty, or shorten your amortization to pay off your home faster.
Fixed vs Variable Rate
This is one of the most common questions we get, and the answer depends on your personal situation and risk tolerance.
Fixed rate: Your payment stays the same for the entire term. Provides certainty and peace of mind. Ideal if you’re on a tight budget or prefer predictability. The downside is that fixed rates are typically slightly higher than variable, and the penalty for breaking a fixed-rate mortgage (the IRD) can be substantial.
Variable rate: Your rate fluctuates with Prime. Historically, variable rates have saved borrowers money the majority of the time over 5-year terms. The penalty for breaking a variable mortgage is only 3 months of interest, much less than the IRD on a fixed. The downside is payment uncertainty if rates rise.
Compare specific numbers using our fixed vs variable calculator.
Costs Involved
For a purchase, your main costs beyond the down payment include land transfer tax, legal fees, appraisal, title insurance, and home inspection. Budget 1.5-4% of the purchase price.
For a refinance, costs include a potential penalty for breaking your existing mortgage (check our penalty estimator), legal fees ($1,000-$2,000), appraisal ($300-$500), and possible discharge fees from your current lender. In many cases, the long-term savings far exceed these upfront costs.
Call us at 905-455-5005 or contact us online to run through your specific scenario. We’ll show you the math so you can make an informed decision.
FAQ’s - Purchases & Refinance
Q: What is the difference between a purchase mortgage and a refinance?
A: A purchase mortgage finances the buying of a new property. A refinance replaces your existing mortgage on a property you already own, often with different terms, a better rate, or a higher amount to access equity.
Q: How much does it cost to break my mortgage to refinance?
A: For variable rate mortgages, the penalty is typically 3 months of interest. For fixed rate mortgages, it’s the higher of 3 months interest or the Interest Rate Differential (IRD), which can be significant. Use our penalty calculator for an estimate, or call us for an exact number.
Q: Can I refinance with bad credit?
A: Yes. B lenders and private lenders offer refinancing options for borrowers with credit challenges. Rates will be higher, but if the refinance helps you consolidate debt or avoid losing your home, the numbers often make sense. See our bad credit mortgage page for more.
Q: Should I choose fixed or variable?
A: Fixed gives you certainty, variable gives you flexibility and historically lower cost. If you might need to break your mortgage early, variable is often safer because the penalty is much lower. We’ll help you compare both options for your specific situation.
Q: How often can I refinance?
A: There’s no legal limit, but there are practical considerations. Each refinance involves costs (penalty, legal, appraisal) that need to be justified by the savings or benefit. For most people, refinancing makes sense when rates have dropped meaningfully, when significant equity has built up, or when a major financial need arises.