Clocks are ticking on mortgage refinancings

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeReal EstateMortgagesClocks are ticking on mortgage refinancingsRobert McLister: If bond markets are right, higher interest rates lie ahead You can save this article by registering for free here. Or sign-in if you have an account.Rates affect refinance applications in multiple ways, and they don't all point in the same direction. Photo by Getty Images/iStockphotoIf bond markets are right, higher interest rates lie ahead, partly for reasons I covered in last week’s column.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThat matters if you’re eyeing a refinance, and matters more if your application isn’t a slam-dunk mortgage approval.Swap forwards — derivatives that translate market rate expectations into numbers — point to a 21-basis-point climb over the next 12 months for the rates that drive five-year mortgage pricing (source: CanDeal DNA).Some borrowers read that as a simple instruction: refinance before rates go up.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againBut it’s not that simple.Rates affect refinance applications in multiple ways, and they don’t all point in the same direction.Also, bond markets handicap the future about as reliably as bookmakers do; i.e., they can be wrong.Here’s what refinancers should be weighing right now when it comes to timing.Equity is a binding constraintEquity take-out refinances are capped at 80 per cent of your home’s lending value, less any outstanding secured loans.That’s a hard wall, and it’s typically built on an appraisal — a number that drifts with the real estate market.Higher rates, all else equal, weigh prices down. Every dollar your home loses takes 80 cents of borrowing room with it.As we speak, national real estate indices suggest stabilizing property values, with the RPS-Wahi House Price Index up 1.7 per cent since March’s two-year low.But no appraiser uses the national average.If you’re going for the full 80 per cent, what’s happening on your block outranks national averages.A five per cent valuation shortfall on a $1,000,000 property reduces borrowing capacity under the 80 per cent loan-to-value cap by $40,000. That can totally derail many debt consolidation plans.Wahi’s analysis of the 19 markets flagged as most tariff-exposed found 12 posting annual price declines in July, led by Brantford (-10 per cent), Barrie (-10 per cent) and Abbotsford (-9 per cent).At the start of 2025, prices in all 19 were growing.And tariffs don’t confine themselves to property values.They hit paycheques in exposed roles.That’s obviously important since roughly 19 out of 20 mortgage approvals hinge on income (some are mainly based on your equity).Unless negotiators pull a deal out of their hats, U.S. President Donald Trump’s scheduled 50 per cent Section 338 tariffs, covering everything from wine to hockey sticks to cement, take effect August 19.If those tariffs stick, underwriters will be watching to see whose employers and income could be at risk. If your income is vulnerable, you may want to close on your mortgage sooner.Qualifying capacity moves the same wayTo earn prime pricing, you must prove you can handle a payment at whichever is higher: 5.25 per cent or your actual rate plus two points. This is the federal mortgage “stress test.”Since a refinancer qualifies at their contract plus two, a 50-basis-point rise this year would lift most qualifying rates by the same amount.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.In that case, the same paycheque would get you four to five per cent less mortgage, all else equal.Worth knowing: if you switch lenders with a prime mortgage and don’t increase the balance, amortization or risk, the stress test may not apply. A refinance, however, is an entirely new approval. They’re different animals when it comes to qualifying.Penalties run the other wayBeyond cheaper home prices for new buyers, higher rates come with a second consolation prize.This benefit applies if you want to ditch your lender or change your mortgage terms early on a closed fixed mortgage.In that case, you’ll typically pay a penalty equal to the greater of three months’ interest or the interest rate differential (IRD).IRD compensates the lender for re-lending at less favourable terms, and the Big Six banks have among the costliest penalty formulas in the business.Pro Tip: You can sometimes borrow more money without a penalty by requesting a “blended rate,” but many lenders jack those up — sometimes burying the penalty in the new rate itself. Ask your lender if it does this, and if so, have a mortgage broker run math on the alternatives.When the lender’s rates rise materially above your contract rate, the differential collapses and three months’ interest usually wins.Falling rates do the opposite, fattening fixed penalties and often dimming the case for refinancing.The good news is, tens of thousands of fixed borrowers are still coasting on mid-two per cent pandemic-era rates. Most of those are already at the three-month interest floor.By contrast, someone who signed at 4.5 per cent fixed a couple of years ago likely faces a live IRD — and if rates rise, waiting makes that penalty smaller, not larger.Timing counts too. IRD often (not always) shrinks as maturity approaches.At some lenders, once you’re within nine months of maturity, the penalty drops to three months’ interest.Many also allow penalty-free early renewal within four to six months of end of term, so paying to beat that window is often a donation to your lender’s bonus fund.Every lender computes IRD its own way, so demand the quote in writing. Then hand it to a mortgage broker with proper penalty-analysis tools to model the cheapest path forward.The consolidation clockEquifax’s first quarter 2026 data showed insolvency volumes at a 17-year high, homeowner insolvencies up more than 11 per cent from the fourth quarter, and mortgage holders’ average non-mortgage debt in filings hitting $82,400 — up 19 per cent in two years.Family budgets are increasingly stretched and are especially unkind to anyone leaning on credit.For refinances, damaged credit either closes the door to approval or opens it at a steep price.For anyone hauling debt priced in the teens or higher, that’s a key hazard of waiting. You want to get that debt off the plastic and onto your mortgage while you qualify.Of course, if the refinance can wait and your credit needs rehab before an “A” lender will look at you, waiting may be the better play.Three other points worth knowingIf an “A” lender says no, eight broker lenders now let you stretch amortizations to 40 years, according to Lender Spotlight. Some even qualify you at the contract rate instead of the stress test. That lowers payments and makes it easier to get approved. You won’t be charmed by the rates and fees (fees start at one per cent of the loan amount) but at least competition has trimmed the prime-non-prime pricing gap in recent years. Either way, paying more in the short term to keep payments survivable — then refinancing back to the prime side later — beats missing payments.On a term longer than five years, once you’re past month 60 the Interest Act caps the penalty at three months’ interest.Refinancing “just in case” might make sense if the goal is standby liquidity via a home equity line of credit (HELOC). If that’s the plan, and you need every dollar of credit, applying now negates both rate and appraisal risk.Whether you refinance now or later often comes down to one thing: Will the door to the best loan and terms still be open when I go to apply?”And remember, the adage “borrow when you can, not when you must,” is a rule that’s outlived a lot of rate forecasts.Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.For the best national insured and uninsured mortgage rates, updated daily, please visit our mortgage rate page here.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.