There are many reasons people choose to refinance their mortgage. Refinancing your mortgage to invest in a new business can be a great idea. When you refinance, it’s not the same as renewing or simply switching your existing mortgage to a new lender. Switching your mortgage to a new lender can be done at no cost if it’s time for renewal, and usually with very little change; a mortgage switch can be considered a “refresh” in order to take advantage of better rates or pre-payment terms.
Refinancing, on the other side of the coin, is a brand new day. It’s the creation of a new mortgage at a higher value that replaces your current mortgage. Because of this, there will be legal fees, appraisal fees and possibly a penalty fee for breaking your current mortgage – However if done for the right reasons, you could be saving plenty to make paying those fees worth your while.
When you refinance to invest in a new business you’re taking equity out of your home to fund the new venture, which is why you’re increasing the value of the mortgage. In the grand scheme of things it mostly makes sense to refinance to invest in a new business if you’re going to increase the size of the mortgage by at least $20,000 because there are legal fees involved and you want to make it worth your while.
For that same reason, it’s a good idea to consider the timing of the refinance. It’s ideal to refinance to fund a new business when your mortgage is up for renewal so that you can avoid any penalties for paying out early. However the reality may be that you may need to start a new business in the middle of a mortgage term. In this case you may have to pay a penalty, which isn’t always a bad thing as your new rates could also offer you long term savings. Call your lender to find out what the penalty will be, to make sure that the cost will be worth it in the end. Perhaps the revenue generated by your new business venture will cover the cost of the penalty for refinancing in the middle of your mortgage term, which is a wonderful thing!
A refinance requires a full appraisal of the property, and so a word to the wise: try not to attempt to refinance when you’re in the middle of a home renovation. Lenders are hesitant to lend on properties in the middle of renovations, because in all fairness, it is a little difficult to appraise a half-constructed kitchen or bathroom. Renovations are a positive thing, but many would recommend that you do not start a renovation if you plan to refinance your mortgage to invest in a new business in the near future.
When you consider the big picture and how refinancing fits into your overall financial plan, taking equity out of your home to invest in your new business is a fabulous step forward. If this is an idea that you have had brewing in your mind, give me a call to take a look at your options and we can devise the best plan of action for you. I’m here to answer your lending questions along your path to becoming a new business owner.