The Do's and Don'ts of Refinancing
Posted November 11, 2020
When does it make sense to refinance?
Many homeowners wished they’d asked more questions when they got their mortgage. Most assume there is nothing they can do until the mortgage matures. This is not the case. A mortgage broker can review your mortgage at any time and offer advise on how to get the most our of where you are in the mortgage of your home. Your broker has access to multitude of competitive lenders, options, mortgage types and terms to help you re-evaluate your present mortgage needs.
Typically, we think of a fixed term mortgage as a non-negotiable contract. And it’s true that there are financial penalties to re-negotiate. But many homeowners ask mortgage brokers for a mortgage analysis – a detailed look at the penalties versus the payoffs – to determine whether it’s worth refinancing to get a lower rate, finance a renovation or roll other debt into the new mortgage. Like many Canadian homeowners, you may find that refinancing makes sense.
There are two approaches to refinancing: you can simply pay out the penalty on your existing mortgage and start fresh with a new mortgage, or you can opt for what is termed a “blend and extend.”
Take advantage of the leverage effect
Renewal time is also an excellent opportunity to consolidate your debt . Securing a lower and more competitive rate, in turn, saves you money… money you can then leverage to help you reach many other goals in life. For example, a home renovation or finally taking that dream vacation.
Firstly, understand that you won’t reap immediate rewards when you refinance; it will take time to see the savings, since you’ll have some up-front penalties. So if you’re going to be selling the home in the next year, you’re unlikely to benefit from refinancing now.
Your mortgage broker can help you to assess your “payback” period: the length of time required to see any savings, based on the penalties you will incur and the difference between your existing rate and your new one.
Home Renovations and Improvements are one of the most common reasons why people decide to Refinance their Homes . I have helped multiple people pull out their home equity as a means to build a garage, install a new kitchen, finish their basement, put on a new roof and other general home improvements. It is a win-win situation, as often the home value increases due to the aforementioned home improvements!
A mortgage broker can obtain a better rate for you during your renewal period
The ending of your mortgage term allows you to align your lending strategy to your current means and lifestyle
Consolidating your debts at the renewal period allows for an advantageous rate
So is it worth it?
Only your 8Twelve Mortgage Agent can tell you for sure, but many homeowners are experiencing significant savings – even with rate differentials of two points (or possibly more). Also factor in whether you can roll other high-interest debt into your new mortgage, slashing your overall interest costs. It’s also important to consider whether your long-term goals become more attainable.
Start with meeting an 8Twelve Mortgage Agent who has access to rate information from a wide selection of lending institutions – As with any mortgage, it is also imperative that you consider whether you want to go with a Fixed Mortgage Rate or Variable Rate Mortgage. This will have an effect on the interest rate, monthly payment and how quick your mortgage is paid off.