With some fixed mortgage rates about to head higher, a lot of Canadians will be thinking that if there's ever a good time to get pre-approved or lock in their variable rate mortgage, this is it.

What about people who already have a mortgage? Wouldn't it be great to get out of that 5.50 per cent, fixed-rate, five-year closed mortgage you signed three years ago and take advantage of the lower rates lenders are now offering? Many homeowners who've tried this find out there's one big hurdle blocking that route - the prepayment penalty.

Most closed mortgages have clauses that allow borrowers to pay out their old mortgages only once a substantial penalty is exacted by the lender. For fixed-rate closed mortgages, that penalty is the higher of three months interest or what's called the IRD - the interest rate differential.

The IRD charge is generally based on the difference between the original mortgage interest rate and the rate the lender could charge now when relending the funds for the remaining term of the mortgage.

Many people are stunned by what that penalty can amount to. Prepayment charges of $5,000 and even higher are not uncommon in these situations, and these days, lenders aren't willing to waive or reduce those penalties, because current interest rates are so low.

So is it still worth refinancing these days?

Variable mortgage refinancing

Refinancing a variable-rate mortgage can sometimes make sense.

With an existing variable rate mortgage that's at prime plus one [percentage point], refinancing to prime minus [half a percentage point] can make sense. Prepayment penalties on variable mortgages are usually just three months interest, rather than an IRD penalty.

Mortgage experts say there's another situation that often tilts the balance in favour of borrowers going the refinancing route.

If they have other debt to roll in, that makes refinancing more attractive that's because that other debt is typically at rates well above what mortgages charge.

Figures from the Canadian Association of Accredited Mortgage Professionals show that 18 per cent of mortgage borrowers took equity out of their homes last year by borrowing more.

So far this year, that percentage appears to be even higher - perhaps because new mortgage financing rules go into effect in April 2010 that limit refinancings to 90 per cent of the home's value, down from the old standard of 95 per cent.