1. The rate you’d actually qualify for today
Compare it honestly against your current rate, not the rate you remember signing at.
2. What it costs to break your current mortgage
If you’re mid-term on a fixed mortgage, breaking it early usually triggers a penalty of three months’ interest or an Interest Rate Differential (IRD), whichever is greater, and IRD can be substantial depending on how much time is left and how large the rate gap is. Variable mortgages are simpler and cheaper to break: typically just three months’ interest, full stop.
Your break-even timeline
This is the number that actually tells you whether refinancing is worth it: how many months it takes for your monthly savings to cover what refinancing costs you upfront. Add up the penalty plus legal, appraisal, and discharge fees, then divide that by how much lower your new monthly payment would be. If that comes out to, say, 14 months, and you plan to stay in the home well beyond that, refinancing likely pays for itself. If it stretches out past how long you’ll realistically keep the mortgage, it’s probably not worth it.
Here’s what that looks like with real numbers: say breaking your mortgage costs $4,000 in penalties and fees, and your new rate saves you $250 a month. Divide $4,000 by $250 and you get 16 months; that’s your break-even point. If you’re confident you’ll keep the mortgage at least that long, the math works in your favour.
Penalties shrink as you approach renewal
They disappear entirely at renewal. If your rate gap is modest or your term is close to ending, it’s often smarter to simply wait.
Refinancing isn’t only about chasing a lower rate
Common reasons that have nothing to do with the rate itself:
- Consolidating higher-interest debt (credit cards, lines of credit) into your mortgage at a much lower rate. This can meaningfully lower your total monthly obligations, though it’s worth being honest with yourself about whether the underlying spending habits are also changing.
- Accessing home equity for a major expense, which is sometimes better done through a HELOC or second mortgage instead of a full refinance, depending on your situation.
- Restructuring your amortization. Extending it lowers your payment (but increases total interest over time); shortening it does the opposite.
One final cost to keep in mind
A large penalty can erase most or all of the benefit, especially on a fixed-rate mortgage with significant time left on the term. The right move is always to get your actual penalty amount in writing before deciding anything, rather than estimating it.