There are a number of reasons refinancing your mortgage makes lots of sense. There could be a number of planned events, such as a home renovation or a child’s post-secondary education. The property owner could also be faced with unexpected expenses, such as a home repair or mounting credit card debt.
The first factor that needs to be determined is if there is enough equity in your property? Canadian refinancing rules only allow a home owner to refinance up to 80% of the property’s value. The lender will require that an appraisal be completed to confirm the property value. This cost is normally passed onto the home owner and, in Barrie, normally costs about $350.
The second factor to figure out is what the penalty will be to break your current mortgage? If you are at the beginning of your term or rates have significantly dropped from when you locked your mortgage, you maybe in for a surprise. Your lender will calculate your penalty based on 3 months interest or Interest Rate Differential or IRD. An IRD penalty has the potential of being dramatically high & in some cases can prohibit the home owner from conducting the refinance. So it is best to get a quote from your lender early in the process.
TIP: normally lenders only use a 3 month penalty when calculating the pre-payment fee for a variable rate mortgage. If you think there maybe a chance that you need to break your mortgage within the contract term, you are best to select a variable rate vs a fixed due to the potential of an IRD penalty.
Other costs to consider during a refinance transaction are the legal closing fees & disbursements. These can run anywhere between $800 – $1,200 in Barrie, depending on the number of payouts by the lawyer. You’ll also likely incur a discharge fee from the current lender for approximately $300. As always, there is no fee or commission paid directly to the mortgage broker. The lender provides a “finders fee” directly to the broker after the transaction is complete.
Even though there are a number of costs involved this can be a very economical option for someone needing access to equity in their house. Funds borrowed against property are much cheaper than unsecured bank loans, from an interest standpoint & total cost analysis.
Darren Robinson is a professional mortgage broker in Barrie dedicated to offering the best mortgage strategies and provides personal assistance to help people qualify for difficult mortgages and loans. Call 705.737.6161