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Buying your first home can be an exciting and stressful time. But many homeowners find refinancing their mortgage for the first time to be downright nerve-racking. What do you need to know about refinancing a mortgage? From different rates and amortization periods to penalties and looking for a different lender, there is a lot to consider when refinancing a mortgage. Below are five things you need to know about refinancing your mortgage.

Things To Know before You Refinance Your Mortgage

Take Advantage of Low Interest Rates

Homeowners refinance their mortgage for many different reasons. But most homeowners in the GTA refinance their mortgage loan to take advantage of lower interest rates and lower monthly payments. After all, refinancing a mortgage with a lower interest rate of just one percent can save homeowners a lot on their monthly payment. Even monthly savings of $150.00 to $200.00 can have a big impact on a family’s budget.

Extend or Reduce the Amortization Period

Amortization, or the length of time it will take you to pay off your mortgage, is another thing homeowners in the GTA should consider. A family’s financial situation may have changed since getting the first mortgage and it might just make sense to refinance with a shorter or longer amortization period.

If you find your finances have improved, it might be a good idea to refinance a mortgage with a shorter amortization period. Increasing mortgage payments can lower the amortization period by five or more years and save tens of thousands in interest payments.

It’s also quite possible that the family budget has been stretched thin and you want to free up some capital. In this case, refinancing a mortgage with a longer amortization period might be the best thing to do. It will take longer to pay off the mortgage and lead to more interest payments, but it could free up $100.00, $200.00, $300.00, or more a month.

Know the Penalties

Most homebuyers only pay attention to the rate and amortization period; while these are important, so too are payout penalties and pre-payment privileges. Talk to your mortgage broker and go through all the loan documents to make sure you understand everything in detail.

If you refinance your mortgage early, you will be hit with some penalties. But don’t let the idea of a penalty discourage you. Know the numbers. Refinancing early to a lower interest rate can save you a lot of money in the long run.

The penalty for refinancing a mortgage early—if you have a variable rate mortgage—is three months’ interest. If you have a fixed mortgage, you will have to pay the greater amount of either three months’ interest or the interest rate differential penalty (IRD). The IRD can vary depending on the lender, but it’s typically an estimate of the amount of interest the lender would get on the remaining principal.

Along with the penalty, there may be other fees associated with refinancing a mortgage early.

Even with the penalties, it can be worth it to refinance a mortgage early. For example, if the penalty to refinance a mortgage for a homeowner in Ontario is $2,000 but they save $150.00 per month, it will take approximately 14 months to break even; this more than cancels out the costs of refinancing a mortgage early.

If you’re thinking of refinancing your mortgage, ask a mortgage broker—who should have access to hundreds of different lenders—to show you more than just the lenders with the best mortgage rates. That’s only part of the equation. You should also get a list of the available lenders and take a look at their penalties.

Do You Have Good Credit?

To get the best rates when shopping for a mortgage, it’s important to have a good credit score. This shows lenders you are good with your money and you will be able to pay your mortgage. Lenders see a low credit score as a risk and most lenders will not give the borrower the time of day. The same thing can happen when you’re refinancing. The current lender may add a premium to the mortgage refinancing rate if they think you’re a credit risk. This means you will not get the best rates on refinancing options.

Refinancing is not just difficult for those with bad credit. In 2014, the Canadian Mortgage and Housing Corporation discontinued mortgages for those who are self-employed and don’t have third-party validation. More than15% of Canadians are self-employed.

Canada’s big banks also don’t give their best refinancing rates to those who have incurred debt, lost their jobs, or recently declared bankruptcy.

Fortunately, there are lenders out there who specialize in helping those looking to refinance but have bruised credit, are self-employed, or have irregular incomes.

Shop Around

Should you refinance your mortgage, even if you have bad credit, or just stay with your current lender? When it comes to refinancing a mortgage, it’s always a good idea to shop around. Big banks and trust companies will only offer you the financial products they provide even if they’re not best suited to your financial needs. A private broker on the other hand can have access to hundreds of different lenders. Many of whom specialize in helping those with bad credit, who do not have a long enough income record, are self-employed, or have declared bankruptcy refinance their mortgage.

Talk to your current lender and speak to a private mortgage refinance broker to see how they can help. After all, there’s more to refinancing than rates and fees. Refinancing a mortgage is about helping the homeowner meet their long-term financial and lifestyle needs.

Canadalend.com—Helping Canadians Refinance their Mortgages

Is it time for you to refinance your mortgage, or are you thinking of breaking your current mortgage to refinance? The Canadian housing market is one of the most resilient in the world, and with interest rates expected to remain near record low levels in 2017 and 2018, it’s an excellent time to refinance a mortgage.

Canadalend.com is the nation’s leading low-cost private mortgage solution provider and the top destination for those looking to refinance their mortgages. If you want to refinance your mortgage with the best rates and terms, talk to a licensed, independent agent at Canadalend.com.

We work with a network of hundreds of different private lenders and will help evaluate your financial situation and consider all your mortgage refinancing options.

To find out what your options are, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Home Equity Loan to Consolidate Debt

It can be difficult to get ahead when you’re trying to pay off high-interest debt on credit cards, auto loans, and other consumer debt. If you’re a property owner though, you’re in a unique position to borrow against the equity you’ve built up in your home and manage that debt.

Home equity is the difference between the value of the property and the unpaid balance on the mortgage. A home equity’s increase every time you make a mortgage payment and as the value of the property rises.

Consolidating debt with a secured loan that is backed by the equity in your property, like a home equity loanand/or home equity line of credit (HELOC), gives you access to a much lower interest rate than what you would find with a conventional loan or revolving credit (credit cards).

Two of the most popular ways for homeowners with more than 20% equity in their home to consolidate debt is through a HELOC or home equity loan. A HELOC is a revolving line of credit with an adjustable interest rate that lets you tap 65% on the value of your home. Because it is a line of credit, you do not get all the money at once. Instead, you access as much or as little whenever you need it.

A home equity loan on the other hand is a little different than a HELOC. A home equity loan is similar to a primary mortgage; you receive a one-time lump-sum that is paid backed over a fixed period of time, usually at a fixed interest rate. Once you get the home equity loan, you have to start paying interest on the entire amount.

With a home equity loan, which is also often referred to as a second mortgage, you can borrow up to 80% of the appraised value of the home (minus the balance of the outstanding balance on the primary mortgage).

Using a home equity loan or HELOC to pay down debt can help save money, increase monthly cash flow, and streamline the debt process. Consolidating debt with a home equity loan or HELOC also makes it easier to pay down your debt because you’re now dealing with just one low interest monthly payment. This also frees us extra money each month.

Getting appraised for a home equity loan and HELOC is not very difficult. That’s because the loans are secured against your home.

Advantages of Using a Home Equity Loan to Consolidate Debt

There are many advantages to getting a home equity loan to pay off debt:

• Get immediate access to cash to pay off high interest debt
• Can be used for emergency bills, vacation, home renovation, or anything else you like
• Consolidating debt with a home equity loan will lower monthly bill payments
• Paying off debts will help improve your credit score
• A home equity loan can be spread out over the lifespan of the mortgage
• It’s an excellent option for those with bad credit or a previous bankruptcy

Using Home Equity to Pay Off Credit Card Debt

Interest rates on mortgages are near record lows and are forecast to remain near these levels for quite some time. This has helped keep the interest rate on a home equity line of credit to just over five percent. Compare this to credit cards that can have interest rates in excess of 30%. That’s why home equity loans are so popular with property owners saddled with high interest debt.

Calculate Your Total Debt

While credit card debt and interest payments can be the biggest portion of debt, most people have more than one type of debt. If you’re looking to consolidate debt through a home equity loan, add up the total amount of debt you have; this will include everything like credit cards, student loans, car loans, etc.

How Much Equity Do You Have?

How much equity do you have built up in your property? A mortgage statement will show you how much you have paid down (equity) and how much you have left to pay. It’s also a good idea to see how much your home was appraised for. Thanks to the strong housing market in the GTA, chances are good that you have more equity built up in your property than you think. A lender will most likely want to reappraise the property to determine the current value.

Which Option Is Right for You?

There’s more than just one way to tap the equity in your home. Which one best suits both your financial and lifestyle needs: a home equity line of credit or a home equity loan? Both of these financial tools will help you consolidate your debt and pay them off. But it’s up to you to decide which option is best: a lump sum with a fixed interest rate or a revolving line of credit with a variable interest rate.

Pay Off Your Debts

Once you’ve been approved for a home equity loan or HELOC, you can use it to pay off all your debts! Going forward, it’s important not to take on even more debt because you still have the initial credit card debt to pay off—it’s just been shuffled to a low interest rate option.

Canadalend.com: Helping Canadians Consolidate Debt

If you have high-interest debt and are thinking of consolidating with a home equity loan or HELOC in the GTA, let the mortgage professionals at Canadalend.com help. It might not be difficult to find a lender willing to give you a home equity loan, but the rates and conditions will vary.

The licensed independent agents at Canadalend.com have access to hundreds of different lenders. Some even specialize in helping homeowners that have bruised credit, have been through a bankruptcy, haveunreliable income, are self-employed, etc.

We’ll evaluate your current financial situation and help you come up with a debt consolidation plan that meets your financial and lifestyle needs and help you find the right lender.

To find out what your debt consolidation options are, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

As a family grows so does their need for more space or different neighbourhood amenities. This could mean an extra bedroom or bathroom or maybe it’s important to be within walking distance to a high school instead of a daycare. Life changes and where you live has to fit your lifestyle or even enhance it.

For most families, there will come a time when they must ask themselves if they need to upgrade their home or move to a new one.

Some Reasons that a Family Might need to Move

The most common reason that a family usually considers moving is because they need more space to accommodate a new addition. If you live in a condo, it’s almost impossible to build another bedroom or nursery which means calling the movers and packing up for a bigger place.

Another reason might be that your current home has increased in value and you want to cash in to make a profit. Not only is this a good idea, it can even facilitate an upgrade rather nicely.

Sometimes Upgrading Doesn’t mean Moving

If your family is comfortable and you’re not expecting any new members, then moving might not be the answer. Your home might just need a reconfiguration to be more hospitable.

This can come in the form of a drastic renovation like a kitchen or bathroom remodel or maybe it means a fresh coat of paint and some new appliances. These can make your home feel new and even add value if you plan on selling down the road.

Upgrading can be Mandatory

Maybe you’re expecting another child or plan to care for an elderly relative. Maybe you need to make your home more accessible or are considering listing it on Airbnb for supplemental income. Whatever life hands you or whatever risk you must take, upgrading your home could become a reality. It’s a potential blessing in disguise, though, as your home could become more livable, usable and even more valuable.

The best advice is to always speak with a trusted professional and to consider a home equity loan to finance the upgrades without going broke.

When you need a loan there are a number of different routes you can take. Some are better than others. You can borrow from family, take out a line of credit with the bank, or even use the overdraft in your bank account. If you’re a homeowner though, you’re in a very unique position. While often overlooked, you can tap the equity you’ve built up in your home with a home equity loan.

Whether you need money for a project, unexpected expense, or want to consolidate debts that have higher interest rates, one option is to borrow using your home equity as security.

“Home equity” is the difference between the value of your home and balance of the current mortgage. For example, if your home is worth $400,000 and you owe $150,000 on your mortgage, you have $250,000 in home equity. Best of all, your home equity increases every time you make a mortgage payment and as the value of your property increases.

If you have more than 20% equity in your home, there’s never been a better time to take out a home equity loan. The Ontario housing market remains resilient, interest rates remain near record lows, and the provincial economy is improving.

How Does a Home Equity Loan Work?

A home equity loan works a lot like a mortgage, in fact, home equity loans are often referred to as a second mortgage. Just like a mortgage, a home equity loan is secured against your property.

After getting approved for a home equity loan, the lender will send you a one-time lump sum payment that gets paid off over a set period of time, with predetermined monthly payments.

Just like the first mortgage you took out on your home, you are charged interest on the total amount of the home equity loan as soon as you receive it.

How Much Can You Access with a Home Equity Loan?

With a home equity loan, you can borrow up to 80% of your home’s appraised value, less the unpaid balance on the existing mortgage.1

When you get a second mortgage, you are now responsible for two monthly mortgage payments. In the unfortunate event of a default, your home would get sold and the first mortgage would get paid with the proceeds (along with any fees and penalties) before the second mortgage does.

How Do You Qualify for a Home Equity Loan?

You must be approved before you can borrow from your home equity. It’s also important to note that not all financial institutions offer home equity loans. Even for those lenders that do provide home equity loans, the requirements can vary. One thing is certain though, when it comes to Canada’s banks, the bigger the lender the stricter the lending rules.

Below are some of the requirements needed to qualify for a home equity loan.

• Loan-to-value ratio lower than 80%: To get a home equity loan, you need to have built up at least 20% of equity in the value of your home. An independent appraiser will determine this number.
• A debt-to-income ratio of 43% to 49%: The debt-to-income ratio is the percentage of monthly gross income that goes toward paying your debts.
• A credit score of 620 or higher: Credit scores (300 to 900) show lenders how likely you are to pay your bills on time. The higher the score, the lower your risk. To get the best rate, some lenders insist on a minimum score of 680.

Benefits of a Home Equity Loan

Lower Interest Rates

One of the biggest draws of a home equity loan is the lower interest rate. The interest rate is lower than other types of loans because it is secured by your home equity. The interest rate on a home equity loan can be either variable or fixed, and is usually higher than the first mortgage, but it is a lot lower than other types of loans; especially credit cards.

Up Front Cash

Home equity loans are great option for property owners who need the money for a large expense or expenses and know exactly how much they need. Because you are paying two monthly mortgage payments, which can seem daunting, home equity loans are ideal for those who can pay it off in a relatively short period of time, like three to five years.

Tax Breaks

Most home owners are not aware of the tax breaks associated with a home equity loan. You can deduct the interest on a home equity loan from your taxes if you invest the money you borrow.

Improve Your Credit

Qualifying for a home equity loan can help improve your credit score because your payment history is the most important factor when it comes to your credit score.

To improve your credit score:

• Always make your payments on time
• Contact the lender if you think you’ll have trouble paying a bill
• Don’t skip a payment even if there is a dispute
• Make a minimum payment if you can’t pay the full amount

What Can You Use Your Home Equity Loan For?

The lump sum payment you get with your home equity loan is perfect for making a large purchase or number of big purchases. For example, you can use a home equity loan to renovate or improve your home. In doing so, you actually increase the value of your home and gain more equity.

A home equity loan is also perfect to cover big expenses, like a child’s wedding, helping with tuition, a car, recreational vehicle, and for unexpected medical bills.

There is a long tradition in Canada of homeowners paying off their mortgages. It’s a rarity for those to get behind on mortgage payments in Ontario and delinquency rates in Toronto are low. For private lenders, home equity loans are one of the safest financial vehicles to get involved with.

How Canadalend.com Can Help You Secure a Home Equity Loan

Unlike the big banks, which only try and sell you their own financial products, the licensed mortgage professionals at Canadalend.com are independent. We have access to hundreds of different lenders, which means we can find you a lender that will provide you a home equity loan. If you’re a homeowner and are looking to take out a home equity loan, contact Canadalend.com today or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “Borrowing against home equity,” Government of Canada, March 7, 2018; https://www.canada.ca/en/financial-consumer-agency/services/mortgages/borrow-home-equity.html.