Understand your refinance terms

An open mortgage can be paid off any time without a penalty, usually at a higher rate. A closed mortgage has a lower rate but charges a penalty if you pay off more than your privileges allow before the term ends.

The question to ask: "If I might sell or refinance within the term, what would breaking this mortgage cost?"

A fixed rate stays the same for the term. A variable rate usually moves with the lender's prime rate. Some variable-rate mortgages adjust the payment; others keep the payment the same and change how much of it goes to interest.

The question to ask: "If rates rise, does my payment change, or does more of it go to interest?"

Prepayment privileges set how much extra you can pay each year without a penalty: often a percentage of the original amount as a lump sum, plus a payment increase. Prepayment privileges vary a lot between lenders.

The question to ask: "What can I prepay each year, and does unused room carry over?"

The three months' interest penalty is three months of interest on what you owe. Three months' interest is the usual penalty on a variable-rate mortgage and the minimum on many fixed-rate mortgages.

The question to ask: "Which formula applies to my mortgage, and can you show me the calculation in writing?"

For fixed rates, lenders usually charge the higher of three months' interest or the IRD — roughly, the interest the lender loses because today's rate for your remaining term is lower than yours. Some lenders use posted rates and your original discount, which can make the IRD much larger.

The question to ask: "Do you calculate the IRD with posted rates or the rate I signed for?"

A standard charge is registered for the amount you borrow. A collateral charge is often registered for more than you borrow, which can make it easier to borrow more later from the same lender, but can make switching lenders at renewal more involved.

The question to ask: "How is this mortgage registered, and what would it take to move it to another lender at renewal?"

Portability is the option to move your mortgage — rate, balance and remaining term — to a new home when you sell, within the lender's time limits, avoiding a penalty. You still need to qualify.

The question to ask: "Is this mortgage portable, how long do I have between sale and purchase, and what if the new home costs more?"

In a blend-and-extend, your lender combines your current rate with today's rate and extends the term, instead of charging a penalty to break the mortgage. A blend-and-extend can avoid a large penalty, but the lender sets the blended rate.

The question to ask: "What blended rate would you give me, and how does the cost compare with breaking and refinancing?"

A readvanceable mortgage is a mortgage and a home equity line of credit under one registration. As you pay the mortgage down, the line of credit can grow by the same amount — within 65% of the home's value for the revolving part and 80% in total (OSFI).

The question to ask: "Can the credit-line part be reduced or frozen by you, and what are its payments?"

Amortization is how long it would take to pay off the whole mortgage at the current payment (often 25 or 30 years). The term is how long this particular rate and contract last (often 1–5 years), after which you renew.

The question to ask: "If I keep the payment the same, how long is my remaining amortization?"