Real estate investors and landlords often refinance their rental property to take advantage of lower interest rates or access the equity they’ve built up to invest in another property. When you refinance, you may receive a loan amounting to as much as 80% of the appraised value of your rental property. Refinancing can make good sense in certain situations, however, it’s critical to consider all the costs to make sure it’s the right decision for you.
Refinancing Cost Consideration 1: Are You at the End of Your Term?
Where are you within your mortgage? Are you within your term or at the end of your term? If you break your mortgage term early, there is a prepayment penalty. This penalty will depend on a number of factors including how much is left to pay on your mortgage, the number of years of the term and how far into your term you are, and the mortgage rate, among others.
Refinancing Cost Consideration 2: Are You Switching Banks?
Whether or not you are refinancing at the end of your term or within your term, if you are switching banks/lenders ,you will have to pay a discharge fee. Banks across Canada set their own fees, and it varies from province to province, but as an average expect to pay between $200 - $300. (It could be as low as $75 or as high as $400.
Refinancing Cost Consideration 3: Registration Fees
The next cost is the mortgage registration fee. The property refinancing process means that your bank is doing away with the current mortgage and re-registering your property with anew mortgage. And, yes, a fee is involved. It’s not too much, typically under$100, but another cost to consider when making a decision involving refinancing your property.
Refinancing Cost Consideration 4: Attorney Fees
If you refinance your mortgage, you’ll need to consult with a lawyer. Expect to pay between $1,000 and $2,000for the lawyer to perform services on your behalf, including running a title search, looking for any liens, reviewing the offer to purchase as well as the mortgage contract, registering the mortgage and deed, paying out any disbursements, and preparing the closing documents.
Refinancing Cost Consideration 5: Inspection Fees
A home inspection may not required but in some cases your bank may insist on it. A professional inspection can run anywhere between $300-$500, depending on where you live in Canada.
The Bottom Line
The cost to break your current mortgage if you are still within its terms as well as various closing costs can add up quickly. So, do the research, crunch the numbers and consult your mortgage professional. Only then can you determine if refinancing your rental property makes sense from a financial perspective. If you are looking for help managing your properties more efficiently, consider property management software.