Are you wondering if there is a way for you to save money, borrow money inexpensively, or protect yourself against future interest rate hikes? If you are a homeowner, one strategy that you can employ to accomplish this is to refinance your mortgage. But before you make the decision to refinance your mortgage, there are a few things that you need to know.
What does it mean to refinance your mortgage?
The simple answer is that refinancing means breaking your current mortgage early and replacing it with another one. You new mortgage can be for the same amount as your current mortgage (so that you can pay off your current mortgage), or it can be for a higher amount (so that you can pay off your current mortgage and receive an additional lump sum of money).Once you have refinanced your mortgage, you will be responsible for making your regular monthly or bi-weekly payments with interest just as you do your current mortgage.
For what reason would a homeowner refinance their mortgage?
There are a variety of reasons why someone might want to refinance their mortgage, but there are two main reasons: to lower their interest rate or to borrow money at a low cost. Lower your interest rate: If you currently have a mortgage with a higher interest rate (such as a bad credit mortgage or self-employed mortgage) but you can now qualify for a mortgage with a lower interest rate, then you may be able to save quite a bit of money by refinancing your mortgage and getting a lower interest rate. Borrow money: Refinancing your mortgage can also be a great way to borrow money at a low interest rate. Typically, lenders will allow you to borrow up to 80% of your home equity with a home refinance. Homeowners use this method of borrow for a number of purposes including home renovations, getting a down payment for another property, and for debt consolidation. Really though, you can borrow money from your home equity through a refinance for any purpose that you choose.
Are there any drawbacks to a mortgage refinance?
The main drawback is that because you will be breaking your first mortgage, there is going to be a financial penalty. The further away your current mortgage renewal date is, the higher that penalty is going to be. Nevertheless, a mortgage refinance may still be able to help you save quite a bit of money, but you should consult with a mortgage broker to make sure the trade off is worth it.
How do I know a mortgage refinance is the right option for me?
The best way to know if this is the right strategy for you is to consult with a mortgage broker. A broker will do a needs assessment and determine whether it makes financial sense for you to refinance your mortgage or if there is another solution (like a second mortgage) that will better meet your needs. Contact Akal Mortgages today. To learn more about refinancing your mortgage and if this is the right solution for you, call us today.
Reasons to Refinance your Mortgage
If you have never refinanced your mortgage, you may not really understand the point of it or how it can benefit you. That’s ok though – many people have never had the need to refinance so they don’t really know why they may want to consider this option. Here are a few reasons why you may want to look into refinancing your mortgage soon.
Pay off your consumer debts
If you have a lot of credit card debt, you can use a refinance on your mortgage to help you pay it off. Oftentimes, the interest rate on your mortgage is going to be lower than what you would be paying on your credit cards or lines of credit.With refinancing, your mortgage company will extend the money to pay off your credit cards and then add it to the balance of your mortgage. This may also allow you to free up a lot of cash flow with your income and provide you with the convenience of only having to make one monthly payment.
Secure a better rate
Many people will lock into their mortgage term for 3, 5 or even 7 years. In that time, interest rates can change. If they change in your favour, you may want to take advantage of that and lock in at a much lower interest rate. If you do this, and keep your mortgage payment the same, you may be able to pay off your mortgage much faster than anticipated.Access the equity in your homeDo you want to do a major renovation to your home but don’t have the cash to pay for it? You may be able to use the equity in your home to finance the renovation, so you don’t have to put it on credit cards or lines of credit.
Work with a better lender
If you don’t really like the terms of your current mortgage or you feel as though another lender can offer you something better than you have right now, it may be the right time to look at refinancing.This can also work if you previously didn’t work with a mortgage broker, and you want to start working with one to see what your options are.
Not if you’re moving soon
If you plan to move within the next 5 years, you may not want to refinance your mortgage if you can avoid it. Oftentimes you won’t receive the benefits of refinancing within a year or two of doing it. So if you are thinking about selling anytime soon, it may end up costing you more to do it than it’s worth. This is because there are often fees involved for refinancing and even penalties for breaking the mortgage early.
When is the Best Time to Refinance Your Mortgage?
If you are thinking about refinancing your mortgage, you may be wondering if the timing is right. Perhaps interest rates have dropped since you signed for your original mortgage – on the other hand, maybe you are thinking of holding out until interest rates drop a little more. How do you know when the right time is?
If you are waiting for interest rates to hit their bottom however, that is a game that you are likely to lose. No one can predict exactly when that is going to be.
The bottom line is that the best time to refinance your mortgage is when doing so is going to save you money!
When will refinancing your mortgage save you money?
There are several scenarios in which refinancing your mortgage can save you money. Among the most common are:
- When interest rates have dropped – even a small decrease in your mortgage interest payments can save you thousands of dollars over the time that you pay off your home.
- You qualify for a better type of mortgage – maybe interest rates with the Bank of Canada haven’t changed much, but the interest rates that you qualify for have. For example, if you currently have a bad credit mortgage, but now you qualify for a more traditional mortgage, then refinancing your mortgage may save you a lot of money in interest.
- You are consolidating debt – the other scenario in which refinancing your mortgage can save you money is when you have other higher interest consumer debt. If you have enough equity in your home, you can consolidate your other debts by refinancing your mortgage which can substantially lower how much you will have to pay in interest over time.
Does refinancing your mortgage always save you money?
When you refinance your mortgage, you will have to break your mortgage in order to get a new one. And because you are breaking your mortgage early, there will be a financial penalty to pay. So even if you are saving on interest, it is important to make sure that you are saving money overall. If the penalty for breaking your mortgage is too high, then it won’t be beneficial for you to refinance – even if you are saving on interest.
Typically, the closer you are to your renewal date, the less you will have to pay as a penalty. But if you recently renewed your mortgage, then chances are that it won’t be worth it for you to refinance.
How do I know if refinancing will save me money?
The best way to find out if you can save money – and how much – through refinancing is to meet with your mortgage broker. They have software that will run the calculations for you to determine whether refinancing is a smart choice for you. (And if it’s not, they can show you other options you may not have considered).
Refinancing can be a great financial strategy, but it’s important to work with your mortgage broker to see if it makes sense for you.
Contact Akal Mortgages today
Would you like to learn if the time is right for you to refinance your mortgage? If so, give us a call today.
Important Things to Know Before You Refinance Your Home
Refinancing your home can be an effective way to reduce your interest payments, consolidate your debt, or even to finance a large purchase or project. But before you refinance your home, you need to understand exactly what this strategy does and does not do. So if refinancing is something that you are considering, here are a few things that you need to know.
Understand what it means to refinance.
While it may sound like a fancy financial term, refinancing is really nothing more than breaking your mortgage in order to replace it with another one. The mortgage that you replace the original mortgage with could be for the same amount of money or it could be for a higher amount of money. The original mortgage is paid off with the new mortgage and – if you chose a mortgage for a higher amount of money – any additional cash goes to you which you can then use to pay off creditors or put toward something else.
Refinancing is an opportunity to borrow from your home equity.
If your new mortgage is for a higher amount than the original, it means that you are borrowing from your home equity. When you refinance, lenders will usually let you borrow up to 80% of your home equity – so this can be a good opportunity to get a loan at a low interest rate.
To illustrate, let’s say that your home is valued at $500,000 and you have $300,000 still owing on your mortgage. That means you’ve got $200,000 in home equity. If you borrowed the full 80%, you could get $160,000. So your new mortgage when you refinance would be for $460,000 – or the $300,000 you need to pay off the original mortgage plus the $160,000 that you are borrowing from your home equity,
You will have to pay a financial penalty for breaking your mortgage.
One thing to keep in mind when you refinance is that because you’ll be breaking the terms of your original mortgage, there will be a financial penalty to pay. Generally speaking, the closer you are to your mortgage renewal date, the less you will have to pay for this penalty. (So if you recently renewed your mortgage, the cost of refinancing may be prohibitive.)
Despite the fact that there will be a financial penalty to pay for breaking your mortgage, it may still be a good deal if the amount of money you’ll save in interest payments will be greater than the financial penalty that you’ll have to pay. This can be complicated to figure out on your own, but your mortgage broker has software to run the calculations. Your broker can tell you whether you’ll save money by refinancing your mortgage, and if so how much.
You can save money on interest by refinancing your mortgage.
Perhaps the number one reason why so many people choose to refinance their mortgages is because they can save money on interest by doing so. If interest rates have gone down since you got your current mortgage or if you now qualify for a better rate because you have improved your credit, refinancing can be a smart financial strategy. Remember, even a small difference in percentage can save you thousands of dollars over your amortization period.
Another way that you can save money on interest is if you are consolidating higher interest debt. Some types of loans like credit cards and payday loans can have extremely high interest rates. The interest rates on mortgages however have been very low for several years. By consolidating your debt with a mortgage refinance, it means that with each payment you’ll be able to pay more on the principal – so not only will you save money on interest, but you’ll be able to pay off your debt considerably faster.
And the final way that you might be able to save money with a mortgage refinance is if you believe that mortgage rates are likely to go up. The Bank of Canada has been hinting for some time now that they will be raising interest rates. If you are concerned that rates will go up before your mortgage renewal date, you may want to consider refinancing your mortgage.
You may need to get your home appraised.
If you intend on borrowing from your home equity when you refinance your mortgage, the lender may require you to get a home appraisal in order to ensure that your home’s value is high enough to warrant the loan that you are requested.
A home appraisal is typically done at the homeowner’s expense (usually a few hundred dollars), but it is sometimes a necessary part of the process. If an appraisal is required, your mortgage broker can help you arrange this.
Work with a mortgage broker to get the best deal on a mortgage refinance.
While the goal of refinancing your mortgage is usually to get a better interest rate, there will still be some lenders that will offer better rates than others. But shopping various lenders on your own can be complicated and time consuming.
Your best strategy for getting the lowest interest rate on your mortgage refinance is to work with a mortgage broker. Brokers have an extensive network of lenders that they work with and are best equipped for find you the lowest possible interest rate for your refinance.
Don’t take out any other big loans before your mortgage refinance is finalized.
One thing to keep in mind when you refinance your mortgage is that you will get a better deal from the lender if you have good credit. Taking out another big loan during the application process (like a car loan, etc.) can temporarily lower your credit score and affect what you (and even if you) qualify for.
Be sure to wait until your mortgage refinance is settled before you make any big financial moves.
Contact us today
There are many advantages to getting a mortgage refinance but there are also some things you need to know and that a mortgage broker can help you with. If you are considering refinancing your home, call us today to speak with one of our brokers.