Purchasing a home is an investment and can often be left as an untapped resource. Unlike other more liquid assets, accessing the equity in your home requires planning, technical knowledge, and paperwork. Refinancing a mortgage means replacing one contract with a new one, essentially following the same process as the initial home loan.
Far from simply approaching your bank and asking for a consolidation loan or line of credit, refinancing is a complex process that requires an in-depth understanding of CMHC regulations and the ability to navigate potential lenders. This sounds like a complicated process, and without the right help, it can be. An experienced mortgage broker helps guide you to prepare applications and secure necessary finances.
The basic principle of refinancing is to secure finances to pay the remaining amount of an existing mortgage to begin a new contract. New loans will come with their new terms and interest rates that will vary from your initial mortgage agreement. This process frees up any equity that has been built in the home and can even enable homeowners to take advantage of a fluctuating market.
There are plenty of reasons that a property owner might choose to refinance. Whether you are hoping to reinvest in your property through renovations, make a large purchase, are looking to fund a student’s education, or consolidate debt, refinancing can be a great alternative to high-interest personal loans.
In addition to taking out equity, refinancing can help to improve your financial position. In a fluctuating real estate market, refinancing can provide an ideal option to take advantage of lower interest rates. Even a slight change in interest rate can make a massive difference to your monthly and yearly payments. Refinancing to a new mortgage with a lower interest rate can help to decrease monthly payments and help earn equity faster. Refinancing can also be a great way to change the style of mortgage that you have. Your initial mortgage will either be a fixed or variable style, but a new contract can help change this and take advantage of current market conditions.
Occasions to Refinance Your Mortgage
Renovations: Whether you own a heritage home or have purchased a “new build,” there are always ways to add value to your property or make it your own. A home renovation can be an expensive process. Anything more than a coat of paint can mean a significant investment, which may not provide the value you expect. On the other hand, a kitchen or bathroom update can make a world of difference when looking to add value, aesthetic appeal, and function to any space.
Consolidate Debt: Many Canadians are carrying debt. Debt may come in the form of credit cards, student loans, or personal loans and can be spread out across many areas, along with multiple interest payments. Opting to refinance can help pay off existing debt, eliminate unnecessary interest payments, and consolidate debt into standard, scheduled mortgage payments. This simple step can help to pay off debt faster and more comfortably.
Make Another Investment: There is no greater investment than education. Whether for yourself or a loved one, funding a post-secondary education is expensive. Instead of struggling to maintain a job during studies, refinancing provides a realistic alternative to a student or personal loan
Convert Mortgage Type: Whether you chose a fixed-rate mortgage or variable mortgage (adjustable-rate mortgage), there are advantages to both; these perks can change over time. Refinancing is a great way to shift both loan terms and structures. Periodic adjustments to the market can have large-scale ripple effects on interest rates and home valuations. Renegotiating your terms can help to benefit you in the long run through shorter-term loans, lower interest rates, and by making your home equity into an accessible asset.
Mortgage Refinancing: Let A Professional Handle the Details
If refinancing seems like the right option for you, there are a few things to consider before signing on the dotted line. When you are ready to cash out, refinance options are not different than an average mortgage loan. Instead of just tacking an additional amount onto your original mortgage balance, this process requires the same steps as initial loan applications.
From credit reports to employment and financial records, it is necessary to provide potential lenders with a complete financial picture. When a financial snapshot is a primary goal, there are things that you can do to make yourself a more attractive applicant. Choosing to work with a mortgage professional can not only provide essential tips for improving your financial profile but can help to decide if refinancing is in your best interest.
Due diligence is key to making informed financial decisions. This research includes a complete valuation of your property. Unfortunately, it can be difficult to be unbiased when it comes to a home. Sentimental value carries a lot of weight for property owners, but lenders will often disagree with personal valuations. Partnering with an expert can help to gain unbiased insight into your property and your financials.