What is
In short, Mortgage Refinancing is the process of replacing your existing mortgage with a new mortgage, generally with much favorable terms than the original mortgage.
There is a limit set up for equity take out via mortgage refinancing. The maximum you can refinance is 75% – 80% of the appraised value. And the maximum equity take out is up to $200,000 only.
It is important to first understand what you want to accomplish. The most common goal of refinancing is to tap into the equity of your home. You’ll be surprised by the options you have when you consider a smart refinance loan.
Additionally, Debt Consolidation (paying off existing debts) is another common goal of refinancing. If you have both a first mortgage and a SECOND mortgage, combining the two into one fixed-rate loan levels out the payment over the life of the loan term.
Why go for mortgage refinancing ?
One of the most common reason is to save thousands of dollars in interest payments especially when previous term has higher rate of interest.
Anther big reason to refinance your mortgage is to access home equity (cash out refinance). This increases new mortgage loan amount and may or may not increase your monthly mortgage payments.
Let’s pose a scenario here – imagine you have student loans, high interest credit card debts, and car loans all on your plate right now. By tapping into your existing equity, you can have these debts paid off, and end up getting a variable rate of interest which makes your monthly payments lower and most importantly lower your pre-payment penalties.
That leads me to my next point. It is often hard to juggle all of the payments, especially the ones mentioned above. At times, you may end up with late payments, collections, and consumer proposals. Refinancing would veer you onto the path of jump-starting your credit repair – better late than never!
Another huge benefit is that it allows you to access the equity that you currently have in your home. Did you know you can get a line of credit (LOC) based on the value of your home, and the amount that you’ve already paid on your mortgage?
With this option, you can pay for future university costs, fund home renovations, or get that travel package you’ve always wanted. The interest rate is equal to your mortgage rate, so borrowing from the equity in your home would be a rather cost-effective financing option available to homeowners.
What to keep in mind when refinancing?
One thing that is evident from my Facebook, Instagram, and Twitter pages is that we believe in transparency and integrity. With that being said, there are some very important things to keep in mind when refinancing your home mortgage.
- You can only access up to 80% of the appraised value of the property
- The Maximum cash in hand has to be up to $200,000. All your income documents, credit cards, etc., are needed to process the mortgage application
- Formal full appraisal is required in most cases
- Know the pre payment penalty to pay off your existing loan. It depends upon your interest rate (fixed rate mortgage or variable rate mortgage)
- There is often a small amount of legal cost (Closing Costs) with refinancing. A lawyer has to remove any older liens and place an updated lien amount and new lender’s name on the title of the property.
- July 09, 2012, our former finance minister implemented new mortgage rules which directly impacted home owners looking to tap into their equity.
Following were the list of changes implemented;
- Amortization of Insured mortgages down to 25 years
- Refinancing of existing homes capped at 80% Loan to Value
- The maximum purchase price for insured mortgages limit to $1 Million dollar homes
In a nutshell, these changes were designed to deter homeowners to use their home equity as ATM machines.
Why Clients Love Our Mortgage Refinancing Solutions?
Clients appreciate us because we prepare a mortgage refinancing solution that not only increases client’s monthly cash flow, but allows them to clean up their credit almost immediately, and increases their credit scores quickly.
Our mandate is to incorporate clients long term and short term financial plans – this way clients DO NOT end up paying higher penalties in the future.
If you’re considering refinancing your mortgage, your next stop would be to check out the Restrictive Mortgages in Canada and mortgage stress test requirements.
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