So What is Mortgage Refinancing Anyway?
Updated: Mar 19, 2021
Life can get complicated and things can happen that are mostly out of your control. Depending if you are looking at a financial emergency, aiming to enhance your financial situation, push more finds toward your investment portfolio or just looking to spoil yourself with an overdue vacation, mortgage refinancing may be the best option available – if done properly!
Refinancing a mortgage is the process of renegotiating your current mortgage agreement for any number of reasons. Basically, it allows you to pay off an existing mortgage with your current lender and replacing it with a new mortgage from the same or a new lender. Important to keep in mind many lenders offer incentives to attract new business so moving to a new lender may be the most financially beneficial.
WHY REFINANCE AND IS IT FOR ME??
As mentioned, there are a wide variety of situations where is makes sense to at least consider mortgage refinancing. This is by no means an exhaustive list, but here are a few examples.
Looking to leverage a large increase in your property value
You want to take equity out of a home for renovations or improvements
You want to grow or diversify your investment portfolio
Consolidate debts, particularly when you have high interest rate debts
You would like to help support kids who are headed off to college or university
You are in the process of finalizing a divorce
You would like to take advantage of lower market interest rates
You want to switch your mortgage from variable to a fixed mortgage (or vice-versa)
REFINANCING BENEFITS
There are a host of wonderful benefits which can result from mortgage refinancing, such as lowering financial stress and assisting you as you get back on track with your financial future! Some of the biggest benefits include:
Getting A Lower Interest Rate
As mentioned, one reason to refinance a mortgage is to improve upon your current interest rate – this is particularly true when done through a mortgage professional. On average, a Dominion Lending Centres mortgage professional has access to over 90 different lenders. This strength helps them, help you, by scouring all the available mortgage products to find the best mortgage product for your unique situation. It’s a far better option for a consumer versus walking into a traditional bank for help as they only have access to their own limited mortgage products. Plus, using a mortgage broker gives you access to a wealth of advice, typically at no cost to you the borrower.
Consolidating Your Debt
There are different types of debt, from credit cards and lines of credit to education loans and of course a wide variety of mortgage products. But, did you know that the vast majority of these consumer borrowing tools have far greater interest rates than those available on a mortgage? Refinancing can free up cash to help you pay out these debts and secure an overall better interest rate AND reduce the number of payments you need to make. While it may increase your mortgage value, your overall payments could be much lower and would be a single payment versus multiple sources. Don’t forget in a refinancing situation, you need at least twenty percent equity in a property to qualify.
Modifying Your Mortgage
Life seems like it is ever-changing and sometimes you may want to pay off your mortgage faster or change the type of mortgage you have. Perhaps you came into some extra money and want to use it to pay down your mortgage or maybe you are weary of rising interest rates and want to lock in at a fixed-rate for long term security. These are all excellent reasons to refinance, just make sure to consult your mortgage professional about potential penalties.
Utilizing Your Home Equity
One of the biggest benefits to buying a home in the first place is to build up equity in your home and your overall net worth. What is home equity? Consider it simply as the difference between your property’s current market value (or appraised value) and the balance owing on your mortgage. If you need or want to access funds via refinancing, you can refinance your mortgage up to eighty (80%) of your home’s appraised value!
Things To Consider When Refinancing
As with all things, refinancing comes at a cost! If you are having financial challenges or find yourself in one of the previously mentioned situations and think refinancing your mortgage could be the right solution, there are a few things to be aware of.
The first and most important thing to understand about mortgage refinancing is that if you opt to refinance during your term, it is considered breaking the mortgage agreement. As with any contract, there are penalties associated with breaking them and it may end up being a costly move. If possible, it is always best to hold off until the end of your mortgage term before any refinancing is finalized.
Beyond the penalties, here are a few additional items to know about mortgage refinancing:
It allows you to access up to eighty percent of the value (appraised value) of your home.
It requires re-qualification under the current rates and rules, which will include passing the government mandated debt “stress test”.
No default insurance is required, which may give you more lender options
There is typically an appraisal cost and some legal fees for the new mortgage agreement.
Talking to your Mortgage Professional about refinancing can provide you access to better rates and mortgage terms to best suit your situation and what you are trying to accomplish through your refinancing strategy. And as with most mortgage products, the services of a mortgage professional will not cost you a penny.
I hope this has been helpful and I look forward to speaking with you and assisting with your mortgage needs.
Doug Paterson
Mortgage Agent in Ontario, Canada.
Dominion Lending Centres.
416.432.8836 | www.dougpaterson.com
