Mortgage Refinance – What you Need to Know

When you take out a mortgage, you don’t have to keep it ‘for life.’ If you come across lower interest rates, better terms or you have equity in your home, you may apply for a mortgage refinance. When you refinance, you break your current mortgage term and start another.

Let’s look at how it works.

What is a Mortgage Refinance?

When you refinance your home, you borrow money according to your home’s current value. You may borrow up to 80% of the home’s value, which sometimes puts more money in your pocket.

Home owners (the borrowers) refinance for the following reasons:

• Secure a lower interest rate – If rates drop lower than your current rate, you may save money refinancing. With less money going toward interest each month, you may pay your loan off faster, owning your home sooner.
• Change terms – If you have a variable rate you may refinance into a fixed rate term. With predictable payments, you can budget better and avoid higher rates during an increasing rate environment. Some borrowers even switch from a fixed rate to a variable rate in a decreasing rate environment to take advantage of the lower interest costs and higher principal payments.
• Tap into home’s equity – If you have large amounts of consumer debt or your home needs renovations, tapping into your home’s equity may help cover the costs. Whether you save money on high-interest consumer debt or you pay for needed home renovations, you may save money in the long-term.

How to Refinance my Mortgage

You have a few options when you want to refinance your mortgage.

Traditionally, borrowers break their current mortgage contract to take out a new loan. You may take out the new loan with any lender of your choosing. When you break your contract, make sure you know the prepayment penalty fees. For example, you may pay three months’ worth of interest or the IRD (Interest Rate Differential), whichever is higher if you break your contract. See your mortgage contract or contact a mortgage broker to assist you in understanding your situation.

While that sounds like a lot, if you compare it to the savings the new mortgage allows, you may see that it’s worth it. Look at the bottom line, not just the costs of the loan upfront.

Other options to refinance your loan include:

• Taking out a HELOC – If you have many uses for your home’s equity, you may consider a HELOC or revolving line of credit. This loan uses your home as collateral but gives you repeated access to the equity as you repay it (much like a credit card). A HELOC is a second loan on your property, separate from the first mortgage.
• Blended mortgage – If you need additional funds, but want to keep your existing mortgage, consider a blended mortgage. This option blends the rate between your current rate and the new market rate, giving you a rate in between the two while giving you access to your home’s equity.

Can you Refinance your Mortgage to Consolidate Debt?

If you have a large amount of high-interest consumer debt, you may use your home’s equity to pay it off. First, determine your home’s value. While you’ll need an official appraisal if you refinance, estimating the value for the time being works.

Once you know your home’s value, multiply it by 80%, as that’s the maximum amount you may borrow. If your home is worth $350,000 for example, you may borrow up to $280,000. Now compare that to your current outstanding balance. Do you have room to wrap your credit card debt or personal loans into it?

If you do, you may benefit from lower interest rates, paying the principal balance off faster, rather than paying excessive interest fees.

For My Grey Bruce Mortgage and related queries, Let’s connect by calling us at 226-702-0702.

Qualifying for a Mortgage Refinance

Like a traditional mortgage, a mortgage refinance has different requirements depending on the lender. However, the general guidelines require:

• At least 20% equity in the home based on today’s values
• Decent credit
• A total debt ratio of no more than 42% (comparison of your monthly debts to your monthly income)

Because each lender varies, checking which options are available to you is crucial. One lender may not like your credit score, while another is okay with it. There aren’t one-size-fits-all guidelines throughout the industry.

Should I Refinance my Mortgage?

Look at your circumstances to determine if you should refinance. Ask yourself:

• Can I get a lower rate if I refinance my mortgage?
• How much money will I save over the life of the loan after paying the pre-payment penalties?
• Can I consolidate my debt with a refinance?
• Will I save money if I consolidate my debt with my mortgage?
• Can I get a better term that enables me to pay the loan off faster?

If you qualify for a refinance and you answered ‘yes’ to any of the questions above, it may be a good option for you. Even if you have to break your mortgage contract, if there are enough savings, you still come out ahead. Whether you refinance only the mortgage or you consolidate debt into your loan, if you can save on interest costs, you’ll pay your loan off faster.

Are you Ready to Refinance?

Does refinancing your mortgage interest you? Maybe you want to see how much you can save or if consolidating your debt makes sense. Our professionals will happily go over your financial situation for you, helping you understand the costs to break your mortgage and how much you may save doing so.

We’ll cover all of your refinancing options including a first mortgage refinance, HELOC, or blend and extend mortgage. We’ll show you the ‘big picture’ allowing you to make decisions that affect your finances not only now, but well into the future too.

Are you ready to look at your refinancing options? Call, email, or text us today, our professionals will get back to you right away, going over your options and helping you make the most of your homeownership.