Do you want to reduce your monthly mortgage payments, get cash from your home equity, or get a better rate on your mortgage? It may be time to think about refinancing your mortgage. A 2018 study found that 47 percent of Canadians may need to take on more debt to pay for living expenses and don’t have much wiggle room in their monthly budget.
As with most things, there’s a right way and a wrong way to refinance. So, is refinancing a good idea for you? Get the facts and decide for yourself!
What is Refinancing?
If you refinance your mortgage, you are replacing your current mortgage with a new mortgage. People choose to refinance to lower their interest rate, reduce monthly payments, or get cash from their home for repairs or other expenses. People also refinance to consolidate other debts into one payment at a lower interest rate.
The process is pretty similar to when you got your first mortgage. You will need to work with your Mortgage Broker to find best terms and rates for your situation and provide the needed documents such as income verification.
Benefits of Refinancing
Refinancing your home has several benefits. You can lower your monthly payment and use that savings to put toward other debt, save money, or put more money toward your mortgage payment to pay off the loan earlier.
If you pick a shorter amortization (# of years the payments are based on) such as 15 or 20 years, rather than the standard 25 or 30 years, you will save money on interest and pay off your mortgage faster.
Do you want to do some home improvements, make a large purchase, or pay off other debts? You can use the equity in your home to take out cash. You may be eligible to get up to 80 percent of your home’s appraised value less your unpaid mortgage balance.
You can also consolidate your home equity line of credit and first mortgage into one payment, so you can focus on paying off that debt.
Cons of Refinancing
Refinancing a mortgage may not be the best option depending on your financial situation or goals. There are a few risks you need to consider.
When you refinance your mortgage you are resetting the amortization, so you could be adding years of interest back onto your mortgage if you are choosing a longer amortization then you currently have. Keep in mind, if you are paying off outside consumer debt where you were making the minimum payment, you could be reducing your overall length of time to be debt free, just by adding a few years to the mortgage.
Fees are incurred when we refinance your mortgage. These fees can include legal fees to register and discharge the existing mortgage, appraisal fee and any penalty charges from your current institution and any other sundry fees particular to your own transaction, please ensure you discuss this with your broker. The cost of refinancing needs to be considered when reviewing if refinancing is right for you.
When to Refinance
If you can save money; this is a common reason for refinancing. There are other times you may want to consider refinancing as well.
Home Renovation
If you already have equity in your home, you can reinvest this equity back into your home and make improvements. You could add a room onto your home or redo your bathrooms or kitchen and pay one payment with your mortgage.
Improved Credit Score
If your credit score has improved after a difficult financial situation like bankruptcy, divorce, or lost a job, you may have a higher interest rate. You can take advantage of your higher credit score to get more favourable mortgage rate and terms.
Your Home Value Increased
If the value of your home has increased, you may get benefit from refinancing because you can pay off higher interest debts like credit cards. You can also complete other home improvements to possibly raise the value even more.
Lowered Mortgage Rates
Mortgage rates fluctuate. If you secured a loan when the interest rates were higher, you may want to consider a new loan at a lower rate and take advantage of the savings.
How to Refinance
Refinancing is just like looking for any other type of loan. This is when you should call your trusted mortgage broker. They will help you crunch the numbers, check on your credit situation and help you determine the best financial institution for your needs. They will walk you through the process and help to ensure a refinance is in your best interest.
So, Is Refinancing a Good Idea?
If you are ready to consolidate your debts, save money, or get cash from your home, it may be time to refinance. Refinancing could be a good strategy to put yourself on the path to financial freedom.
Contact Amy Coburn today to get started on your refinance. As an experienced mortgage broker, she will help you through the whole process and find rates and terms favorable to your financial situation and goals.