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Is This The Right Time To Refinance My Mortgage?

Is This The Right Time To Refinance My Mortgage?

Couple refinancing their mortgage

Couple refinancing their mortgage

There are many benefits to refinancing your mortgage. However, it’s important to weigh the pros and cons to ensure it’s the right time for you to do so. With inflation and mortgage rates rising, be sure to look at your existing contract and assess whether or not refinancing will cost you or save you money in the long run.

As a mortgage broker and financial advisor, I can offer expert advice to help you make this major decision and help you to find the best solution for your unique situation. Below is an outline of my ultimate guide to deciding if the timing is right to refinance your mortgage.

But, before we get started… What does it mean to refinance your mortgage?

A mortgage refinance is when you replace your existing mortgage with a new one on different terms. Generally, you do this with a new lender or if you work with a mortgage broker like myself, you work with the same broker but, shift your mortgage to a new lender.

Why would I refinance my mortgage and what are the benefits?

1. Lower mortgage rates.

Even though interest rates have increased recently, with rising inflation, the Bank of Canada has predicted that they will increase again this year. Although I don’t have a crystal ball to tell me how high the rates will go, refinancing your mortgage now may reduce your monthly payments over time. Even a small change in mortgage rates can save you a lot of money on your payments over the lifetime of your mortgage.

2. Debt consolidation.

If you have a number of outstanding debts, like personal loans and credit cards, you can consolidate these debts into your mortgage and pay a smaller monthly amount than you would without consolidating multiple loans. This can help take the pressure off your finances and free up cash for the things you want to do in life.

3. Accessing your home equity.

Every time you make a monthly mortgage payment, you’re building equity in your home. Home equity is the difference between your house’s market value and the outstanding balance of your mortgage. If you need extra cash, you can tap into your home equity by refinancing your mortgage which basically allows you to give yourself a loan instead of having to go to the bank. With house prices at an all-time high, you may get more equity out of your home right now. Whether you need funds for a home renovation or extra cash to pay down your debts, refinancing your mortgage may be your best solution.

Will I even qualify to refinance my mortgage?

If your loan-to-value ratio is lower than 80%, you can refinance your mortgage. This is calculated by dividing how much you owe on your mortgage, along with other debts secured by your property, by the current value of your home. Your mortgage lender will review your monthly income and your debt payments when reviewing your mortgage application. They may also ask for the following documents:

  • A copy of your T4 slip
  • Notice of Assessment
  • A recent paystub
  • Your mortgage statements
  • A recent property tax bill
  • A recent asset statement for your investments, RRSPs, and savings accounts.

If you are self-employed there may be other documents they request in addition to these. Your mortgage broker will explain which documents and can assist you in organizing your paperwork.

When do I refinance my mortgage?

You can refinance your mortgage at any given time but there is a lengthy process you must go through. It’s most common to refinance your mortgage at the end of your mortgage term to try to get a better rate.

It’s best to refinance when mortgage rates are low and many people were able to afford a home during the pandemic because of the low mortgage rates. However, rates are expected to increase in the coming months. Getting pre-approved for a mortgage rate is important so you lock into a lower mortgage rate while you negotiate with your existing lender.

My mortgage term is up for renewal. Do I have to go with the same lender again?

Not at all. You can search around for different lenders to get a better deal. After all, you want the best mortgage rate so you’re paying less interest moving forward. Your existing lender will most likely offer you an incentive to stay on as a client if you always pay your bills on time. But, keep in mind they make money on their investment in you so, if you’re a good customer, they will try to keep you. But don’t be afraid to say no and see what better offers are out there. Working with a mortgage broker will ensure you get the best rates on the market to help you save money in the future while obtaining the best options as well.

Can I change my mortgage lender halfway through my mortgage term?

If you want to “break up” with your mortgage, it isn’t as simple as sending an email and it’s over and done with. You normally have to pay a hefty fee if your mortgage term isn’t up yet. After all, you are breaking a contract. It’s important to work with a mortgage broker to go over all the legal paperwork to make sure you do it properly if you do make a change mid-term. You don’t want to face a lawsuit if you breach the contract and mortgage penalties can add up quickly.

When I refinance, should I go with a fixed-term mortgage or a variable-term mortgage?

The answer depends. A fixed-term mortgage has a mortgage rate that stays the same throughout your entire term. If it’s a 5-year term, then it will stay at that rate throughout the entire term regardless of the market. With a variable-rate mortgage, interest rates are lower but your payments can fluctuate. Residential mortgage debt grew last year at the fastest pace seen since 2008. Many people with variable-rate mortgages are refinancing to lock in mortgage rates before they increase again. You never know what will happen with the real estate market, so you may save money on certain months or pay more on others when you have a variable rate mortgage — It’s the risk you take.

Why it’s important to work with a professional mortgage broker

To explore your options and find out if now is the best time for you to refinance your mortgage, work with a professional mortgage broker and financial advisor, like myself, Darren Robinson. With my experience in the real estate market, I can help you decide if now is the best time for you to refinance and if it is the best financial option for you long term as well. Book a free, no-obligation consultation with me today or give me a call at 705-315-0516, and let’s take a look at your financial situation specifically.

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