Should You Refinance
Your Mortgage in 2026?

Rates shifted meaningfully through 2024 and into 2025. If you locked in a 5-year fixed before rates peaked, your renewal math may look very different than it did 3 years ago. Here's how to know whether breaking your mortgage early makes sense — or whether you should wait.

Step 1: Know Your Penalty

The penalty for breaking a mortgage early depends on your product type:

• Variable rate: 3 months' interest on the outstanding balance. At 5.7% on a $450K balance, that's approximately $6,413. Often worth paying.
• Fixed rate: The greater of 3 months' interest OR the Interest Rate Differential (IRD). The IRD is where things get expensive — especially with big banks.

The IRD compares your contracted rate to the lender's current posted rate for the remaining term. Big banks use inflated posted rates in this calculation, which can make the IRD dramatically larger than it should be. Monoline lenders typically use more favourable posted rates.

I've seen IRD penalties range from $4,000 to $38,000 on similar mortgage balances. Call your lender and get the penalty in writing before making any decisions.

Step 2: Calculate Your Break-Even

Once you know your penalty, the question becomes: will the interest savings from a lower rate cover the penalty cost before your original term would have ended anyway?

If the break-even is inside the remaining term, refinancing likely makes sense. If it's longer than the remaining term, you're better off waiting for renewal.

When Refinancing Makes the Most Sense

Rate reduction alone isn't always enough. Refinancing tends to pay off most clearly when:

• You're switching from a high fixed rate to a lower variable or fixed, with a break-even under 30 months
• You're consolidating high-interest debt (credit cards at 19–22%) into your mortgage at 5–6%
• You're pulling equity to fund a revenue-generating investment or renovation
• You want to switch to a readvanceable mortgage (like Manulife One) to implement the Smith Manoeuvre
• Your income has changed and you need to restructure your payment schedule

When to Wait for Renewal Instead

If your remaining term is under 18 months, the math rarely favours breaking early. Penalties typically exceed the savings window. In these cases, start rate shopping 120 days out — most lenders allow you to lock in a renewal rate early without penalty at the 4-month mark.

If rates drop further before your renewal, you can often renegotiate again before the rate hold expires.

The Hidden Cost: Requalification

Breaking and refinancing means requalifying under the current stress test (contract rate + 2%, minimum 5.25%). If your income has changed or you've taken on new debt since your original mortgage, this matters. I run a quick qualification check before every refinance conversation so clients know what they're working with.