Refinancing Your Mortgage
For most Canadian families, your home represents your largest investment. Due to current market conditions and low interest rates, you may be considering refinancing your existing mortgage. If this is something you’d like to learn more about, then it is time to consult an experienced Mortgage Professional for their advice and facilitation.
Refinancing is the process that repays your existing mortgage and starts a brand new mortgage, usually for a higher loan amount and/or for a better interest rate.
Most mortgages can be refinanced at any point (there are a few exceptions and your mortgage professional would advise if this effects your file). But, whether or not you should depends on several factors [OAC]:
- What is your prepayment penalty on your existing mortgage? If you’re breaking an existing closed mortgage to refinance, you’ll pay a penalty. Check your mortgage contract and figure out how your lender will calculate your prepayment penalty. Penalties are generally 3-months’ interest on variable-rate mortgages and the greater of 3-months’ interest or the interest rate differential (IRD) on fixed-rate mortgages. Ask your bank or broker for your penalty cost. Your penalty may be very reasonable or it may be fall-off- your-chair high, it really all depends on timing.
- Is today’s low interest rates better than what you have on your existing mortgage? Mortgage interest rates are at historic lows, levels not seen since the Second World War, so you probably will not find a better time to refinance your mortgage. When you refinance, you may renegotiate term, amortization, etc for lower monthly payments or quicker repayment of the mortgage debt.
- Do you have a mortgage renewal coming up anyway? At renewal time, the mortgage may be rewritten just as above with a new or current lender. Lenders love nothing more than to earn a new client a renewal time. You can lock-in 120 days in advance of a renewal date.
- Are you planning a major home renovation or have a big expense looming? It may make sense to take the equity out of your home to pay the renovation expenses and/or any large expenditures you have coming up.
- Are your monthly bills higher than what you’re comfortable with? You may be able to consolidate all your debt into your mortgage. This often betters monthly cash-flow.
- Are you planning to buy RRSPs? With RRSP season just around the corner, you can put your homes equity to work for you and finance the purchase of RRSP and/or investments.