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Should You Refinance Your Mortgage Or Keep Your Sub-2% Mortgage Rate?

Should You Refinance Your Mortgage Or Keep Your Sub-2% Mortgage Rate?

Someone refinancing their mortgage rate

Someone refinancing their mortgage rate

By now, I’m sure you’ve heard that interest rates have increased all around, whether it’s on your mortgage or other existing loans But, I want to assure you, now is not the time to stress; there are many options available to you when it comes to your mortgage. As an experienced mortgage broker and financial advisor, I can help you get the lowest interest rate possible on your mortgage while helping you make the right financial decisions along the way. For example, if you’re looking to move and need a new mortgage you should know that you might be able to refinance your existing mortgage and roll it over to the new home you want to purchase so that you can keep the low rate you have instead of having to start over at the current market rates. Why pay more money in interest when you don’t have to?!

First off, let’s walk you through what refinancing your mortgage is really about.

Refinancing a mortgage is the process of obtaining a new mortgage loan to pay off an existing one.

Why should you refinance your mortgage?

People refinance their mortgages for several reasons, including:

  1. To get a lower interest rate:

This is normally the first reason why you would think about refinancing your mortgage. You could potentially save hundreds of dollars by reducing your monthly payments and overall interest paid over the loan term. As an example, you may be able to get a lower interest rate if you have improved your credit score since getting your mortgage, or if the current market conditions have dropped. There is also more competition among lenders to attract borrowers with the cooling of the market which means there could be new options and rates available to you that weren’t before.

  1. Changing your loan type from a variable mortgage rate to a fixed-mortgage rate, or vice versa.

A variable mortgage rate is an interest rate that fluctuates based on changes in an underlying interest rate index. With a variable mortgage rate, your monthly mortgage payment can increase or decrease over time depending on the current prime rate. The benefit of a variable mortgage rate is that the interest rate fluctuates and is at times lower than a fixed rate which can mean savings on your monthly payment. However, there is also more uncertainty and risk associated with a variable mortgage rate, as changes in the interest rate index can lead to higher monthly payments in the future with little notice.

A fixed mortgage rate is a type of mortgage interest rate that remains the same for the entire loan term, regardless of changes in market conditions. With a fixed-rate mortgage, the borrower is protected against interest rate increases, and their monthly mortgage payment stays the same over the term of the loan. These types of mortgages are a popular choice among home buyers and homeowners who want the stability and predictability of a set monthly mortgage payment. Because of the fixed rate homeowners with this type of mortgage are willing to accept a slightly higher interest rate in exchange for that stability as it can make budgeting and planning easier for the borrower.

  1. To get a shorter loan term.

By reducing your mortgage term, you will pay off your mortgage faster and save on interest costs. For example, A 15-year mortgage term typically results in a lower interest rate but higher monthly payments, while a 30-year mortgage term has a higher interest rate but lower monthly payments. Borrowers can choose a mortgage term that best fits their financial goals and abilities which naturally can change over time.

  1. To tap into home equity to access cash for debt consolidation, home improvement, or other expenses.

Home equity is the difference between your home’s market value and the outstanding mortgage balance. When you refinance, you can choose to borrow more than the current balance of your mortgage and use those funds for various purposes like a long-awaited renovation or to pay off credit cards that are impacting your monthly cash flow. It’s important to consider the pros and cons of tapping into your home equity before accessing it so be sure to check out this article HERE which explains all about using your home equity to renovate your home.

  1. To improve the terms of the original mortgage or to switch from a government-backed loan to a conventional one.

In Canada, government-backed loans are mortgage loans that are insured by the Canadian government through the Canada Mortgage and Housing Corporation (CMHC). The purpose of this insurance is to provide borrowers with more favourable loan terms, such as lower down payment requirements, and to increase access to credit for homebuyers.

A conventional loan in Canada refers to a mortgage loan that is not insured by the Canadian government. This type of loan is often used by borrowers with a down payment of 20% or more of the purchase price, as it does not require mortgage default insurance. Conventional mortgages are offered by private lending institutions, such as banks, credit unions, and mortgage brokers, and can have a variety of interest rate options, such as fixed or variable. Borrowers with good credit and a stable income may qualify for a conventional mortgage loan with a lower interest rate than a government-backed loan so be sure to do your research and review all your options before deciding on which mortgage solution is best for you.

Now, let’s say you own a home currently and want to keep your sub-2% interest rate on your mortgage but need to refinance to move to consolidate debt. What happens then?

Mortgage rates are constantly changing, and the only way to guarantee a sub-2% rate is to lock it in with a fixed-rate mortgage.

These are a few tips to help you keep your sub-2% mortgage rate:

  1. Make all your payments on time.

Late payments can damage your credit score, making it more difficult to get a favourable interest rate in the future.

  1. Maintain a good credit score.

Your credit score is a major factor in determining your mortgage rate, so it’s important to keep your credit in good standing by paying bills on time, keeping credit card balances low, and avoiding new credit inquiries.

  1. Work with an experienced mortgage broker, like me, Darren Robinson so you know you’ve looked at all your options and not just the ones the bank wants you to buy.

By following these tips, you can increase your chances of keeping your sub-2% rate for the duration of your mortgage loan. If you’re contemplating a move whether you want to keep your current mortgage rate or refinance your mortgage for one of the reasons mentioned above, I can help ensure you receive a low-interest rate and feel comfortable with your decision. Book a free consultation with me today and let’s review your options one-on-one so that you can make an informed decision. And, know that I’m only a phone call away when you need me 705-315-0516! Let’s talk.

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