If you have an existing mortgage, you may wish to consider refinancing your mortgage prior to your renewal date. In general, you can normally refinance up to 80% of the current value of your home. This is often advantageous to homeowners for several reasons.
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1. If current interest rates are lower than your current rate you have with your lender, this could be a financial advantage to you. There are several things to consider if you are in this situation, including potential pre-payment penalties that could be charged by your existing lender. In this situation keep in mind that sometimes any pre-payment penalty charged by the lender can be added to the mortgage, so you would not necessarily need to pay this charge up front, but you also would potentially pay interest on the penalty dollar amount.
2. Debt Consolidation: If you currently have debt that is a higher interest rate than your current mortgage, it is often a financial advantage to consider refinancing your mortgage to payout debt. A good option for many people is to payout your debt with a consolidation mortgage, keeping the same payment as you previously paid. With this strategy you will pay off your debt much sooner rather than paying the unsecured loan and mortgage debt separately. Also keep in mind it is not recommended paying off debt with your mortgage and allowing your payments to drop substantially, as this practice may not save you interest costs, as you would potentially pay out your other debt (credit cards, vehicle loans) over 25 years instead of a much shorter time period (for example: 5 years)
3. Renovations: You may wish to consider refinancing your mortgage to take advantage of equity that has accumulated in your home to complete home improvements. This is a great strategy for many homeowners, as renovations will improve the value of your home and perhaps save in maintenance costs. (new wiring, furnace, hot water tanks are some examples)
What is the best way to Refinance my mortgage?
There are two basic strategies to refinance your mortgage. One is to increase the amount of your mortgage to one larger mortgage. The second is to take out a Home Equity Line of Credit (HELOC)
What is the difference between a Mortgage Increase and a Home Equity Line of Credit?
A Mortgage increase simply will increase the dollar amount of your existing mortgage to provide you with the cash you need to consolidate, renovate etc. A Home Equity Line of Credit is done as a Second charge on title where the existing mortgage stays the same, and the Line of Credit would be a separate account.
Is there a way to increase my mortgage and keep my existing interest rate?
Yes, you can normally increase your mortgage and keep your existing interest rate. This is called a blended mortgage which occurs when you keep your existing term the same and the lender will “average” your new rate with your existing one. For example, if you have 2 years left to pay in your term the lender will blend this rate with the current 2-year rate giving you a new blended rate. In this instance you will not be charged a prepayment penalty from your lender as you are not breaking your existing term. Often this is a great option for consideration.
How do Home Equity Line of Credit payments work?
With this option, borrowers are obligated to pay interest only as a minimum payment and you can pay whatever additional amount you wish on the balance with no charge or penalty. The credit limit will be available to you to use as you wish if you own your home. If you sell your home the credit line is paid off with no penalty as a Home Equity Secured Line of Credit as an “open” term financing option.
Are there charges from my existing lender to refinance my mortgage?
There could be a charge from your existing lender as follows:
- Pre-payment penalty amount (Either Interest Rate Differential or 3 months interest penalty) This is charged if you break the contract with your existing lender (payout old rate to new rate)
- Discharge fee – Can be charged if you payout your existing lender and choose a different lender. This is normally between $150 and $250 flat fee.
- Re-registration fee/Legal charge – This may be applicable if you choose to payout your existing lender and choose a new lender.
- Appraisal Fee – This is charged in some instances to confirm the value of the property.
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