Blog Layout
6 Reasons to Refinance your Mortgage
Joe Tomkins • March 17, 2021
Is now a good time to refinance your mortgage? Well, maybe! Interest rates are very low right now, and according to the bank of Canada, they will most likely remain low until at least 2023. So while everyone has different reasons to access their home equity, to a maximum of 80% of the property value, here are 6 reasons refinancing your mortgage might make sense to you.
Your mortgage is up for renewal anyway.
If your mortgage is up for renewal and you’re looking at a new term anyway, this is the perfect time to consider adding money to the balance outstanding as there won’t be a cost to break your existing mortgage. Breaking your mortgage mid-term will incur a penalty. Waiting until your term is up won’t.
It lowers your overall cost of borrowing.
The goal with any mortgage is to pay the least amount of money back to the lender as possible. When considering your mortgage options at the outset, this might mean taking the mortgage with the lowest rate, while it might also mean paying a little higher rate in favour of more flexible terms. It’s all about calculating the best option for you at that time.
When considering a refinance, it’s very similar. You should consider breaking your term anytime and paying the penalty if the terms on the new mortgage can save you more money in the coming years.
These aren’t calculations you can easily make on your own. However, in talking with an independent mortgage professional, you should be able to clearly assess if breaking your current mortgage will save you money in the long run.
To consolidate all your debts into one payment.
Life happens. Sometimes a financial reset is in order. If you have high-interest unsecured debt that is eating up your cash flow, bringing everything into one low payment secured by your mortgage could be a great option for you. Not only does this option give you breathing room in your daily life, but it will also help to protect your credit score if you are at risk of missing payments.
Debt restructuring is probably one of the most common reasons people refinance their mortgages.
To increase the value of your home.
Home renovations can be expensive. Saving up to renovate properly can take a long time. The idea of using your home equity to pay for renovations upfront, especially ones that increase the overall value of your home, can make a lot of financial sense.
Also, with more Canadians working from home due to the changes brought about by COVID-19, adding a home office or finishing a basement to increase the livable space in your home might be a great reason to refinance.
To build wealth through investing in property.
Purchasing a rental property can be a great way to build long term wealth. Although there can be some hassle involved in dealing with renters, having a tenant cover the mortgage cost as the property appreciates can be profitable long term.
Depending on your situation, purchasing a condo for your kids while they attend school is another option to invest in property. And while a vacation home might cost you financially, it can be considered a solid investment in your lifestyle.
If you have significant equity, consider a refinance of your existing property to come up with the funds or downpayment require to purchase another property.
Because you can do whatever you want with your money.
The equity you’ve built up in your home is money you have. However, to access that money, you'll either have to sell your home or borrow against it. And as it’s cold in Canada in the winter, having a home to live in is a good idea. So, if you’re looking to refinance your mortgage to access your equity, do it for whatever reason you like.
Maybe you want to start a new business, maybe you want to help a family member through hard times, maybe you want to help your kids pay for their education, or maybe you want to buy a Harley. The truth is, it doesn’t really matter what you do with the money, as long as you pay the lender back what you borrowed plus the interest.
Of course, with that said, some reasons to refinance might be a little bit better than others, but you can weigh the financial cost accordingly. However, as rates are really low right now, depending on the terms of your existing mortgage, a refinance might make sense.
If you’d like to talk about what a refinance looks like given your existing mortgage and financial situation, let’s do a cost/benefit analysis together. Please contact me anytime.
When arranging mortgage financing, your mortgage lender will register your mortgage in one of two ways. Either with a standard charge mortgage or a collateral charge mortgage. Let’s look at the differences between the two. Standard charge mortgage This is your good old-fashioned mortgage. A standard charge mortgage is the mortgage you most likely think about when you consider mortgage financing. Here, the amount you borrow from the lender is the amount that is registered against the title to protect the lender if you default on your mortgage. When your mortgage term is up, you can either renew your existing mortgage or, if it makes more financial sense, you can switch your mortgage to another lender. As long as you aren’t changing any of the fine print, the new lender will usually cover the cost of the switch. A standard charge mortgage has set terms and is non-advanceable. This means that if you need to borrow more money, you'll need to reapply and requalify for a new mortgage. So there will be costs associated with breaking your existing mortgage and costs to register a new one. Collateral charge mortgage A collateral charge mortgage is a mortgage that can have multiple parts, usually with a re-advanceable component. It can include many different financing options like a personal loan or line of credit. Your mortgage is registered against the title in a way that should you need to borrow more money down the line; you can do so fairly easily. A home equity line of credit is a good example of a collateral charge mortgage. Unlike a standard charge mortgage, here, your lender will register a higher amount than what you actually borrow. This could be for the property's full value, or some lenders will go up to 125% of your property's value. In the future, if the value of your property appreciates, with a collateral charge mortgage, you don't have to rewrite your existing mortgage to borrow more money (assuming you qualify). This will save you from any costs associated with breaking your existing mortgage and registering a new one. However, if you’re looking to switch your mortgage to another lender at the end of your term, you might be forced to discharge your mortgage and incur legal fees. Also, by registering your mortgage with a collateral charge, you potentially limit your ability to secure a second mortgage. So what’s a better option for you? Well, there are benefits and drawbacks to both. Finding the best option for you really depends on your financial situation and what you believe gives you the most flexibility. This is probably a question better handled in a conversation rather than in an article. With that said, undoubtedly, the best option is to work with an independent mortgage professional. It’s our job to understand the intricacies of mortgage financing, listen to and assess your needs, and recommend the best mortgage to meet your needs. As we work with many lenders, we can provide you with options. Don’t get stuck dealing with a single institution that may only offer you a collateral charge mortgage when what you need is a standard charge mortgage. So if you’d like to have a conversation about mortgage financing, please get in touch. It would be a pleasure to work with you and answer any questions you might have.
You’d think an online calculator is a pretty straightforward device, one that you should be able to place your confidence in, and for the most part, they are. Calculators calculate numbers. The numbers are reliable, but how you interpret those numbers, not so much, especially if the goal is mortgage qualification. If you rely on the numbers from a “What can I afford” or “Mortgage Qualification” calculator without talking to an independent mortgage professional, you’re going to be misinformed. Don’t be fooled. Even though an online mortgage calculator can help you calculate mortgage payments or help you assess how additional payments would impact your amortization, they’ll never be able to give you an exact picture of what you can afford and how a lender will consider your mortgage application. While mortgage calculators are objective, mortgage lending isn’t. It’s 100% subjective. Lenders consider your financial situation, employment, credit history, assets, liabilities, the property you are looking to purchase. Then, they will compare that with whatever internal risk profile they are currently using to assess mortgage lending. Simply put, they don’t just look at the numbers. An online calculator is a great tool to help you run different financial scenarios and help assess your comfort level with different payment schedules and mortgage amounts. However, if you rely on an online calculator for mortgage qualification purposes, you’ll be disappointed. The first step in the mortgage qualification process is a preapproval. A preapproval will examine all the variables on your application, assess your financial situation, and provide you with a framework to buy a property based on your unique circumstance. Securing a preapproval comes at no cost to you and without any obligation to buy. It’ll simply allow you the freedom to move ahead with confidence, knowing exactly where you stand. Something a calculator is unable to do. Please connect anytime if you’d like to talk more about your financial situation and get a preapproval started. It would be a pleasure to work with you.
Although it’s ideal to have your mortgage paid off by the time you retire, that isn’t always possible in today’s economy. The cost of living is considerably higher than it has ever been, and as a result, many Canadians are putting off retirement, hoping to make just a bit more money to add to that nest egg. So if you find yourself in the position where you’re considering your mortgage options into retirement, you’ve come to the right place. The advantage of working with an independent mortgage professional instead of a single bank is choice. When you work with an independent mortgage professional, you won’t be limited to an individual institution’s products; rather, you will have access to considerably more options. Here are some options available to older Canadians as they plan for mortgage financing through their retirement. Standard Mortgage Financing If you’ve got a steady income, decent credit, and equity in your home, there is no reason you shouldn’t qualify for standard mortgage financing, which usually comes at the lowest interest rates and best terms. Some lenders use pension and retirement income to support your mortgage application even if you’ve already retired. Reverse Mortgage Financing A reverse mortgage allows Canadian homeowners 55 years and older to borrow money from their homes with no proof of income, no credit check, and no health questions. A reverse mortgage is a fabulous mortgage solution that has helped thousands of older Canadians enhance their lifestyle. Home Equity Line of Credit (HELOC) A line of credit secured to the equity you have in your home is an excellent tool to allow you to access money when you need it but not pay interest if you don’t need it. Many older Canadians like the idea of rolling all their expenses and income into one account. Private Financing If you happen to be in a bit of a tight spot, you have a plan but need a financial solution; private financing might be the answer. Indeed not the first choice for many because of the higher interest rates. However, private financing can provide you with options where a traditional bank can’t. If you have any questions about securing mortgage financing for your retirement, please connect anytime. It would be a pleasure to work with you and walk you through all your options.
The Collective Mortgage Group provides Mortgage Services to loyal clients in a transparent environment, with an authentic voice, helping them feel protected , and save time and money .