Refinancing your mortgage means setting up a new mortgage once you have paid of your existing one. You can do this with your same lender or a different lender. There are just as many factors to consider when refinancing a mortgage as there is to get a mortgage. People generally refinance to get better terms on their current mortgage. You should refinance your mortgage if you want to:
- Utilize low-interest rates
- Pay for tuition, renovations, or increase retirement income
- Switch to a fixed-rate mortgage instead of a variable rate
- Use the equity of your home to make other investments
- Increase the amortization period to decrease mortgage payments
- Decrease the amortization period to increase mortgage payments and pay off the mortgage quicker
You should be aware that refinancing your mortgage comes with its own expenses as there are penalties and fees to pay first. The penalty is usually calculated as three months of interest and your current rate. That being said, your current lender will want to keep your business so the penalty can be negotiable. If you tell them you want to take your banking elsewhere, i.e. accounts, RRSPs, etc. they may pay some or all of the penalty.
There are several options you can choose from when choosing to refinance your mortgage.
Break the existing mortgage
Homeowners will choose this option if there are lower interest rates available, to consolidate debt, or to access the equity in the home. A lower interest rate and consolidating debt help homeowners decrease their interest payments, saving them money every month. It will also be cheaper to borrow money for renovations or anything else with a lower interest rate. In these situations, it is best to renegotiate your current mortgage and get another mortgage with a different lender that understands your short and long-term financial needs.
Add a home line of credit
This is another way to finance a renovation, tuition, or any other expenses. A home line of credit is an inexpensive and easy way to borrow money. The equity of your home increases when every mortgage payment that you make. The more equity you have in your home, the more funds you have available to you through your home line of credit. This type of loan is different from breaking a mortgage. Through a home line of credit, you are only required to pay for the interest on the outstanding balance. A refinanced mortgage requires that you make set monthly payments on the borrowed amount, like with the original mortgage. A home line of credit is ideal for expenses in the thousands rather than hundreds of thousands.
If after considering all of these factors and options you decide to refinance your mortgage, call Mortgage Makers to help you determine what your best options are. We can help you do the math and make sure you sign up for the best contract. Our licensed experts can explain the refinancing process in detail and help you find a lender that is best suited to your lifestyle. We have access to hundreds of lenders with products that are bound to have a product perfect for your needs.