Mortgage Refinancing In Canada: How To Know If It’s Right For You
One of the common questions homeowners have about mortgages is how to know whether or not to refinance. It’s important to have an expert like Your Mortgage Guide help you determine if this is the right choice for you and your home.
What does it mean to refinance your home?
Refinancing is changing your mortgage to a new one with a lower principle and interest rate. If interest rates have recently gone down, it might be a good time to refinance your mortgage. Refinancing can help you pay off your mortgage faster and give you cash up front to use for investments or home renovations.
You can choose to refinance with your current lender or move to a new lender, depending on what will work best for you. This is another factor your mortgage broker can help you determine based on your situation.
How is refinancing determined?
Your lender will determine whether or not you qualify to refinance through calculating your loan-to-value ratio, taking into consideration your mortgage and other debts.
There are many factors to consider when deciding whether or not to refinance your mortgage. Some common factors include:
Lower interest rate
Your interest rate from several years ago when you first bought your home may have been determined in part by the economy at the time, debts you held, or a number of other factors that may no longer be relevant. You might find you’re now able to refinance for a lower rate.
Make sure you talk to your mortgage broker about flexibility, to accommodate changes that might come up in the future. This flexibility will save you from unexpected costs or high rates on your renewal rate, or other things that might be hidden in the fine print. Your Mortgage Guide can go through these terms with a fine toothed comb to make sure you don’t get caught in any bad deals.
Consolidate debt
Like most people, you probably have debt other than your mortgage that you’re trying to pay down.
With lower interest rates, refinancing can help you pay off high-interest credit card debt. When you exchange your existing mortgage for a larger loan, you can take out the difference in cash. This is called a cash-out refinance. At least 20% equity is required for a cash-out refinance.
Overall, your monthly payment may reduce when you get rid of debt, in which case you might want to increase your mortgage payment to pay it off faster. Your Mortgage Guide can help you determine whether or not this is the right choice for you.
Renovate your home
Some people refinance their homes and use the extra funds obtained to complete home renovation projects. While saving money, this also increases the home value if you plan to sell in the future. If your home needs renovations, or you plan to sell soon, this might be a good option to consider with the help of your mortgage broker.
Investments
You’re likely thinking about your future when refinancing your mortgage. With a cash-out refinance, the extra money you attain when refinancing could be put towards investments such as RRSPs, a rental property, stocks, or other tax deductible investments. This could benefit you significantly in the long term.
There are lots of reasons that refinancing your mortgage might be the right choice for you. Ultimately, your mortgage broker will be able to walk you through the decision and determine all the pros and cons of refinancing specific to your situation. Everyone’s finances are different and what’s right for someone else might not be right for you. That’s why Your Mortgage Guide is here to help. Contact us today and let our expertise lead the way for all your mortgage decisions.
