With Refinance Mortgage you can replace your existing debt with a new one. There could be different reasons convincing you to refinance your mortgage, for example, lower current rates, need of extra money or consolidating debt.
Reasons of Refinancing
- Reduced Mortgage Rates: Lower current mortgage rates can persuade you to refinance your mortgage and save your money. However, it is majorly dependent on the outstanding mortgage and penalty. Expected penalty is 3-month interest for variable mortgage rate and 3-month interest + IRD for fixed mortgage rate.
- Equity in Home: Canadian mortgage policies allow the borrowers to access up to 80% of their home’s overall value. This can motivate the borrowers to avail extra funding with new mortgage rates. However, the value of outstanding mortgages should be deducted from the allowed access.
- Consolidate the Debt: If you currently have a number of outstanding liabilities like credit card bills and car loan, refinance mortgage can merge these liabilities to a single manageable mortgage.
Methods of Refinancing
- Brand New Mortgage: This is the most simple and straightforward way of refinancing your mortgage. You can just end your mortgage contract early by paying off the outstanding principle amount in full, and then subscribing for a brand new mortgage with a new interest rate.
- HELOC: You can access up to 65% of your home’s value in Canada using the home equity line of credit. You should also remember that your HELOC and outstanding mortgage balance collectively cannot exceed 80% of your home’s value.
- Mortgage Extension: A mortgage can also be refinanced by requesting additional money. Thus, the final interest rate would be blended by averaging your existing mortgage rate and current market rate. However, you must analyze the blended rate as it might be higher than competitive mortgage rates.
Cost of Refinance Mortgage
If you are terminating your current mortgage before it completes, the lender might charge you with the prepayment penalty. This penalty could either be a 3-months interest only, or the 3-month + interest rate differential (IRD). In addition to that, you might also bear the legal cost of modifying current mortgage contract or formulating a new one. However, negotiating with mortgage broker can save you from such cost.
Although refinance mortgage is a complex process with certain issues involved, it can benefit the borrower to a great extent, if carried appropriately.