How To Refinance your Mortgage
Similar to words such as ‘pataphysics’ (the science of imaginary solutions) or
‘vernorexia’ (a romantic mood inspired by Spring), the definition of ‘refinance’ is just as misunderstood.
And when it comes to refinancing your mortgage versus renewing your mortgage – well that tends to make things even more complicated (like they weren’t complicated enough already!).
What is Mortgage Refinancing?
Refinancing is the process of paying off your existing mortgage and any outstanding claims against your home by setting up a new mortgage. Basically, you pay off your old mortgage with a new mortgage.
Why You Would Consider Mortgage Refinancing
- Pay off other debts
- Consolidate your debt
- Move from a fixed mortgage rate to a variable rate
- Take advantage of low mortgage rates
- Release some of the equity in your home to pay for renovations or another large purchase
Benefits of Refinancing your Mortgage
Refinancing your Mortgage To Switch To a Lower Rate
This reason for refinancing has become more and more common over the past few years given that interest rates are at record lows. It may make sense for you to break your existing mortgage agreement to get a much lower rate. The penalty to break your mortgage will depend on a number of factors, but a charge of a few thousand dollars now in exchange for moving to a rate that’s 1-2% lower, may be worth it.
Refinancing your Mortgage to Buy Other Investments
One of the ways you can use refinancing to improve your financial situation is to take out the equity in your home and purchase other investments or swap your debt to transfer non tax deductible debt into deductible debt.
This is obviously quite complicated, but a good financial planner or mortgage broker will be able to help you. If this is done properly you can benefit by reducing your monthly payments or make some of your mortgage interest payments tax deductible, sometimes resulting in tax cuts of almost 50% for high income earners.
Refinancing your Mortgage to Consolidate or Pay-off Debt
If you have a number of different outstanding debts, such as a car loan, a line of credit and credit card bills, it may make sense for you to consolidate all of the debt into one loan or access your equity to pay off the debt.
How would this work? Let’s say you owe $20,000 on your credit card, your property is worth $200,000 and your mortgage is $120,000 (60% LTV). You have $80,000 of equity in your home. You could take out some of your equity, pay off your credit card bill and then refinance your mortgage for $140,000 at a rate that will be much lower that what your credit card provider was charging.
- Is Refinancing Worth It?
- Getting Approved for Refinancing
- Readvanceable Mortgage
- Preparing for Mortgage Rate Increases
Are you thinking about refinancing your mortgage? Early refinancing has become a bit of a trend; not surprisingly though, everyone is looking to save money where they can. Obtaining a new loan with better interest rates for your home could mean saving money on monthly mortgage payments or using the extra money on other projects such as renovations or making investments. READ MORE
It’s no fun cleaning the gutters but it’s even worse getting declined by the bank. Here are some pointers that might help improve your chances of getting approved for you mortgage refinance. READ MORE
What if you had access to additional funds at great mortgage rates that you could borrow at your leisure? Sound like a dream? With a readvanceable mortgage you can actually make the equity you have built in your home work for you now, rather than later. Here’s how. READ MORE
There’s a lot of talk about mortgage rate increases in Canada. After years of ultra-low interest rates there’s only one direction for rates to go – up. Here’s a few tips to help you prepare for the rate rise. READ MORE