If you’re feeling intimidated when you think of the mortgage refinancing process, know that you are not the only one.
With a mortgage refinance, you pay off the full outstanding amount of your current mortgage and take out a new mortgage with new terms and interest rate with the same or with a different lender. If you are able to get a favorable interest rate and terms – you will be able to save substantially over the life of your mortgage.
With mortgage interest rate at historically low levels in Canada, getting a lower interest rate isn’t the only reason to refinance a mortgage.
Do I need to refinance my mortgage?
· Increase your monthly cash flow – With mortgage interest rates at historic lower levels (despite of paying some fees and penalties for breaking your current mortgage), you can save you a lot of money over the life of your mortgage.
· Pay off your mortgage faster - You may be able to refinance into a loan with a lower interest rate and a shorter term.
· Access your home equity: Most of the homeowners with more than 20% equity in their home – wants to cash out the equity to fund home improvements / renovations or children’s education or investments.
· Lock in a fixed-rate mortgage: If you’re in a variable-rate mortgage and you believe that interest rates are going to rise in the future, you can refinance into a fixed-rate loan.
· Debt consolidation: If you have different credit accounts with outstanding balance & struggling to pay several different payments at high interest rates.
With mortgage refinance, you can consolidate your different debt accounts into one long-term mortgage loan at a favorable interest rate.
Is there a cost to refinance my mortgage
While mortgage refinancing can be a smart financial move, it’s not right for everyone (as it comes with a cost like an appraisal, title insurance, legal fee etc.) so please keep in mind:
1. If you are planning to refinance and break your mortgage contract in the middle of your term (due to any reason), your lender will charge you a prepayment penalty:
· For a fixed rate mortgage - greater of three months interest or the interest rate
differential payment (IRD)
· For a variable rate mortgage - three months of interest
2. Your overall interest cost can increase, if you refinance to increase your mortgage term or want to borrow more money – you will end up paying more interest over the life of your loan.
But the good news is that many lenders will cover some of the cost depending upon the loan program and other details.
Steps to your mortgage refinance
If you think you need to refinance your mortgage, make sure to evaluate your situation and your immediate and future financial goals, if it is the right option for you or you can talk to a licensed mortgage professional.
Evaluate your local real estate market: It is foremost and the most important step in your mortgage refinance process as you need to make sure the timing is right before starting the process. A Licensed Mortgage Professional who is familiar with your local market can help you along the way.
Make sure your financial goals are clear: There has to be a good solid reason which should align with your immediate and future financial goals.
Check your current mortgage outstanding balance from your mortgage statement to calculate the amount of equity you have in your house. A Licensed Realtor can be of great in this.
Check your credit: You’ll need to have qualifying credit for mortgage refinance, the higher your credit score, the better refinance interest rates you can qualify & approve for. It is always recommended to start monitoring your credit at least 12 months in advance:-
- Check your credit report for inaccuracies
- Pay off balances
- Avoid unnecessary credit enquiries
- Avoid big purchases
Shop around & explore options: Comparing products from different lenders can save you lot of money. Don’t just consider low interest rates but compare overall cost of the loan and terms of the loan
A Licensed Mortgage Professional can work with you and shop around on your behalf to find you the best possible products available in your situation usually at no cost to you.
Submit documents: It is always suggested to you are ready with the required set of income, employment and tax documents. The required set of documents could vary among different lenders. The lender will check your latest credit.
Get ready for appraisal: Some banks / lenders may ask for a latest property appraisal to determine the current market value.
Closing & mortgage agreement: Once approved, review all the mortgage agreement documents to understand the total cost and other details of the loan.
Example of mortgage refinancing (equity take out):
Property Value - $400,000
Mortgage Balance - $200,000
Refinance for new mortgage balance of - $300,000
Available equity in cash – $300,000 – 200,000 = $100,000
There are a variety of reasons that might make financial sense to refinance your home loan but be sure to shop around and compare the overall cost of the loan.
Thinking of refinancing?
Talk to a Licensed Mortgage Professional today as they will be able to assess your personal situation (No Cost to you) and discuss the available options for you & guide you through the process.
Comments