2020 has been a financially challenging year for many Canadians, and now in 2021, they are looking for ways to get their finances back on track. One of the strategies that many are considering is something called a mortgage refinance. In this article, we will discuss what that means and how a mortgage refinance might just help you out in 2021.
What is a mortgage refinance?
When you refinance your mortgage, it means that you are breaking your current mortgage and getting a new one. Oftentimes, this new mortgage is secured at a lower interest rate, or it includes an amount of money that you have borrowed from your home equity.
When you refinance, you will be required to pay a financial penalty for breaking your first mortgage, however very often the amount you save in interest payments by far outweighs the penalty you will have to pay.
So how can a mortgage refinance help you out in 2021? Here are a few ways:
- Get a lower interest rate on your mortgage – If interest rates have come down since you last renewed your mortgage, refinancing can help you save money on interest. And even saving a small amount, can help you pay off your mortgage faster!
- Consolidate your debt – when you refinance your mortgage, you will typically have the opportunity to borrow from your home equity. Most lenders will allow you to borrow up to 80% of your home equity. So if you have high interest debt from credit cards, student loans, etc. you can use a mortgage refinance to lower your overall interest payments on your debt and help yourself get out of debt more quickly.
- Finance a large project – Another way that a mortgage refinance can help you out in 2021, is it can help you to finance a large project. Instead of borrowing from your home equity in order to pay off debt, you can also borrow from your home equity to invest in renovations, start a business or finance another large expense. Your interest rate will be lower than it would be on other types of debt, so this can be a smart strategy.
Is mortgage refinancing right for you?
As mentioned, there will be a financial penalty for breaking your first mortgage, so it is important to work with a mortgage broker who can help you determine whether this is the right strategy for you.
If you are interested in learning more about refinancing your mortgage in 2021, call us today to speak to one of our brokers.
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