How to refinance a mortgage on more favorable terms?

Mortgage refinancing is replacing an existing mortgage loan with a new one on different terms, which may include a lower interest rate, a change in term, access to equity, or debt consolidation. In Canada, homeowners can refinance up to 80% of the appraised value of their property, which opens up a wide range of opportunities to improve their financial situation.

According to the Calgary Real Estate Board, the average home price in Calgary has increased by 8–12% over the past year, which means an increase in equity for many homeowners. This creates favorable conditions for refinancing, as increased equity allows access to larger amounts or better interest rates.

Statistics show that almost half of Canadians with 5-year fixed mortgages break their contracts early. The most common reasons include:

  • Refinancing to get better rates
  • Access to equity
  • Consolidation of high-interest debt

Understanding these statistics highlights the importance of planning for a possible early termination when choosing your initial mortgage.

Current market conditions in Calgary (2025)

Interest rates and forecasts

  • 5-year fixed rates — 3.91% – 3.99% (August 2025)
  • Variable rates — 4.05% – 4.20%

These rates are significantly lower than 2022–2023 rates, making them attractive for refinancing.

Expert forecasts:

  • National Bank — reduction of the Bank of Canada's key rate to 2.25%
  • TD Economics — gradual reduction to 2.50%

This trend creates particularly favorable conditions for homeowners who took out mortgages at high rates in 2022–2023.

💡 Example: True North Mortgage offers a promotional rate of 2.99%, which is exceptionally low for the current market.

Calgary real estate market

The Calgary market is showing growth in inventory (market supply):

  • Houses: from 0.9 to 2.3 months
  • Apartments: from 1.2 to 3.2 months

This creates more balanced conditions between buyers and sellers. However, these changes may affect property valuations when refinancing. Owners should realistically assess their property, as professional valuations may differ from expectations.

Reasons for refinancing in Calgary

1. Lower interest rates

The most common reason for refinancing is to get a lower interest rate. Even a reduction of 0.5–1% can lead to significant savings.

Example savings: For a $500,000 mortgage, lowering the rate from 5% to 4% can save approximately $250–300 per month.

Refinancing is especially worth considering if your mortgage was taken out in 2022–2023 at rates of 5–7%. With current rates of 3.91–3.99%, the savings can be so significant that they offset even high prepayment penalties.

Access to equity

Refinancing allows you to access your accumulated equity without selling your property. This can be useful for:

  • Home renovations and improvements
  • Investing in additional real estate
  • Children's education
  • Starting a business
  • Creating an investment portfolio

Example: If your home is worth $600,000 and your mortgage balance is $350,000, you can access an additional $130,000

(80% of $600,000 = $480,000 minus existing debt of $350,000).

Debt consolidation

Consolidating high-interest debt through refinancing can lead to significant savings. Credit cards with interest rates of 19–24% can be consolidated into a mortgage with a rate of 3.91–3.99%, dramatically reducing monthly payments and the total cost of the debt.

Hello Mortgage Calgary specializes in refinancing for debt consolidation. Their clients often save hundreds or even thousands of dollars each month by combining all their debts into one mortgage payment.

Change your mortgage terms

Refinancing allows you to change other aspects of your mortgage:

  • Switch from a fixed to a variable rate (or vice versa)
  • Change the amortization period to reduce or increase monthly payments
  • Change the payment frequency to accelerate repayment
  • Add or remove a co-borrower

Calculating the feasibility of refinancing

Break-even analysis

Break-even analysis is a key tool for determining the feasibility of refinancing. It shows how long it will take for the savings from lower monthly payments to offset the refinancing costs.

MortgagePal recommends that the break-even period not exceed 3 years if you plan to stay in the home for at least that long. If you can get truly free refinancing, the break-even point occurs immediately.

Break-even calculation example:

  • Current mortgage: $400,000 at 5.5%
  • New mortgage: $400,000 at 4.0%
  • Monthly savings: $250
  • Refinancing costs: $6,000

Break-even period: $6,000 ÷ $250 = 24 months

Refinancing calculators

Ratehub.ca and Nesto offer detailed refinancing calculators that take into account:

  • Current mortgage terms
  • New interest rates
  • Early repayment penalties
  • Additional refinancing costs
  • Potential savings

These calculators provide a detailed breakdown of the financial impact of refinancing, helping you make informed decisions.

Refinancing costs

Early repayment penalties

The largest expense when refinancing is usually early repayment penalties. The amount of the penalty depends on the type of mortgage:

  • For variable mortgages: the penalty is three months' interest. For example, for a $500,000 mortgage at a 4% interest rate, the penalty would be approximately $5,000.
  • For fixed mortgages: the penalty is the greater of the following two amounts: three months' interest or interest rate differential (IRD).

Interest Rate Differential (IRD)

The IRD calculation can result in significantly higher penalties, especially with big banks. Mark Herman, a leading Calgary broker, reports that big banks can charge penalties 5 times higher than broker lenders.

Example of a high penalty from a large bank

RBC charged a penalty of $8,900 (equivalent to 15 months of interest). The same client would have paid only about $3,000 with a broker lender.

The difference in calculations is explained by the methodology: large banks use published rates instead of discounted rates, which leads to higher penalties.

Additional costs

Other refinancing costs include:

  • Legal fees: $800–1,500
  • Property appraisal: $300–600
  • Title search and insurance: $200–400
  • Mortgage termination fees (when changing lenders): $300–500
  • New lender administrative fees: vary

Total additional costs typically range from $1,500–3,000, which is significantly less than typical prepayment penalties.

The refinancing process in Calgary

1. Preparation

Before starting the refinancing process, it is important to gather all the necessary documentation:

  • Current mortgage agreement and statements
  • Income documents (T4, pay stubs, tax returns)
  • Bank statements for the last 3 months
  • Details of all debts and assets
  • Property ownership documents

Tip: Spire Mortgage Alberta recommends discussing the value of your home and the potential amount you can access with a broker first.

2. Property appraisal

A professional appraisal is a mandatory part of the refinancing process. An appraiser will determine the current market value of your property, which affects the maximum refinancing amount.

In Calgary's changing market, it is important to have realistic expectations regarding the appraisal. An increase in inventory can affect the appraisal, especially if your property does not have unique features.

3. Stress test

Even when refinancing existing property, you must undergo a new mortgage stress test. This means qualifying at a rate 2% higher than your contract rate or a minimum of 5.25%.

  • For refinancing at current rates of 4%, the stress test is conducted at 6%.
  • Make sure your income and debt ratio allow you to pass this test.

Refinancing optimization strategies

Choosing the right time

Timing is critical to successful refinancing. With current forecasts of further rate cuts throughout 2025, several strategies are worth considering:

  • Immediate refinancing: If your current rate is significantly higher than current market rates (more than 1–1.5%), the savings may justify the penalties even if further declines are expected.

Strategies and tips for refinancing your mortgage in Calgary

Waiting for the end of the term

If your term is ending within 6–12 months, it may make more sense to wait for renewal and avoid penalties.

Short-term refinancing

Consider 1–2 year terms to position yourself for expected further rate declines.

Comparing lenders

Not all lenders are the same when it comes to penalty calculations and refinancing terms. Mortgage Design Group emphasizes the importance of comparing offers from multiple lenders.

Key factors to compare:

  • Interest rates
  • Penalty calculation methods
  • Flexibility of terms
  • Future refinancing options
  • Reputation and service

Using mortgage brokers

Brokers have access to lenders with more favorable penalty terms. Statistics show that broker lenders typically charge penalties that are about 70% lower than large banks.

MortgageTree Calgary has experience helping clients determine whether refinancing is right for them. They can accurately calculate all costs and potential savings for your specific situation.

Alternatives to full refinancing

1. Blend and Extend

Some lenders offer the option to “blend and extend” your existing mortgage. This allows you to get a lower rate without completely breaking your contract, reducing or eliminating penalties.

2. Home equity line of credit (HELOC)

A HELOC can be an alternative to refinancing for accessing your home equity. Although rates are typically higher than mortgages, the absence of penalties can make this option attractive for short- or medium-term needs.

3. Mortgage portability

When moving, consider porting your existing mortgage. This allows you to keep favorable terms without penalties, although additional financing options may be limited.

Tax considerations for refinancing

Interest for investment purposes

If part of the refinanced funds is used for investment, the interest may be tax deductible. It is important to keep accurate records of the use of funds for tax purposes.

Capital gains

When using refinancing funds for investments, it is important to understand the tax implications of future capital gains. Consulting with a tax advisor can help optimize the structure.

Regional characteristics of Calgary

Economic factors

Calgary's energy-dependent economy may influence lenders' refinancing decisions. Some lenders may be more conservative in assessing the income of energy industry employees.

Local lenders

ATB Financial and other local lenders may offer special refinancing programs for Alberta residents. These programs may include reduced fees or particularly competitive rates.

Practical tips for successful refinancing

Plan ahead

Start researching refinancing options 3–6 months before your planned date. This gives you time to:

  • Improve your credit score if necessary
  • Build up additional funds to reduce your debt ratio
  • Research all available options
  • Plan a timeline to minimize penalties

Prepare your finances

Make sure your finances are in good shape before you apply:

  • Avoid new debt for 6 months before refinancing
  • Maximize income and minimize expenses
  • Ensure employment stability
  • Consider increasing the down payment

Document your goals

Clearly document your refinancing goals, especially if the funds will be used for investments. This can have tax benefits and help your lender better understand your needs.

Conclusion

Refinancing your mortgage in Calgary can be a powerful tool for improving your financial situation, especially in a low interest rate environment.

The key to success:

  • Carefully analyze your costs and potential benefits
  • Proper timing
  • Working with experienced professionals

With the right approach, refinancing can save you thousands of dollars over the life of your mortgage and open up new opportunities for financial growth.