We took a mortgage loan 3 years ago and we paid the loan origination fees. We classify the loan at amortized cost and we adjusted the effective interest method for that fee.

Now, after 3 years, we want to refinance mortgage loan with the new loan from the same bank. The new loan has different credit terms and shorter repayment period. When negotiating the refinancing, the bank charged the refinancing fee.

How shall we account for that fee? Should we remove the original fee from the loan and capitalize the new fee? Or, should we recognize the refinancing fee in profit or loss?


If you refinance the loan with the new loan from the same bank, it is the “exchange of debt” and according to IFRS 9, the accounting treatment depends on whether the terms of the new loan are substantially different from terms of the original loan:

  • If the terms of the new loan are substantially different, then you need to account for refinancing as for debt extinguishment – i.e. you derecognize (remove) original loan and recognize a new loan.
    In this case, the refinancing fees are treated as a part of gain or loss on debt extinguishment. In other words, they are recognized in profit or loss.
  • If the terms of the new loan are NOT substantially different, then you do NOT account for debt extinguishment. You just adjust the effective interest rate method accounting.
    In this case, you should amortize the refinancing fees over the remaining life of the loan. IFRS 9 does not specify how you should do that. You can include these fees in the effective interest method accounting, but you can also apply straight-line method as approximation.

The terms are substantially different if the discounted present value of the cash flows under the new terms using the original effective interest rate is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. For reference, please see IFRS 9-3.3.2, B3.3.6.