When your mortgage’s repayment terms are no longer suitable for you, it may be time to refinance. Fortunately, if you’ve been waiting for the right moment to do it, the moment has come. As of October 2020, mortgage rates are incredibly low. To the shock of many, this drop has been continuing for months. Rates may drop even further, or at least remain this low into 2021.
Good News For Homeowners & Homebuyers
As a reaction to the economic damage of the COVID-19 pandemic, the Government of Canada has focused on lowering interest rates to encourage spending. National interest rates have been lowered, and negative interest rates are seen as a possibility.
The goal of the government response is to encourage spending amid a time of economic challenges. For homeowners that are still overpaying for their mortgage, this is very good news. Amid rising rent prices, renters can also take advantage of low rates to end up spending less on housing.
Is Refinancing A Good Choice?
Refinancing your mortgage isn’t always the right option. There are a few reasons for you to consider doing so. Like your first mortgage, a refinanced mortgage is a serious, long-term financial commitment. So, you’ll want to make sure you have a good reason to apply.
If you’re about to make a serious investment such as a major renovation or buying a new property, refinancing your mortgage is a good idea. You can also use mortgage refinancing as a means to consolidate your other debts.
The most straightforward reason to refinance your mortgage is to simply save money. If current interest rates are significantly lower than they were at the time you secured your first mortgage, refinancing will lower your mortgage expenses.
Low Interest & Refinancing
The logic behind refinancing your mortgage when interest rates are so low is clear. You simply save more money on monthly payments and end up paying less for your mortgage overall. But there are still other factors you must consider at the same time. Low interest rates will serve you even better if you have:
• A high credit score
• A low debt-to-income ratio
• A stable income
Refinancing with the above while interest rates are low is a great financial choice.
What Should I Do?
If interest rates and your personal qualifications are ideal, you have several mortgage refinance options you could take.
Bank Refinanced Mortgage
Banks are typically willing to refinance a mortgage with a balance that’s less than the property’s appraised value. Each bank will have a slightly different offer, but they all lend money based on the same criteria. With an attractive financial situation and lower interest rates, you can take a new mortgage to pay the first off and spend less money in the end.
The CMHC offers guides for government-issued loans.
You don’t need to go directly to a bank to get a mortgage. Many professional mortgage brokers can help you get the loan you need. It’s their job to assess your credentials and match you with a mortgage that meets your needs at the lowest cost.
You can leverage your property’s value to secure a more flexible financing option. A Home Equity Line of Credit (HELOC) is, as the name suggests, a line of credit secured by your home’s equity.
While you can use a HELOC for any expense, it makes more sense to take advantage of low interest rates and take them to pay for expenses that increase your property’s value. Because HELOCs are secured with equity, they typically offer competitively low rates.
It’s best to strike while the iron is hot. If your current mortgage isn’t satisfactory, it’s a great time to look for the refinancing option that will make homeownership less of a hassle. With the right choice, you can achieve:
• Lower interest payments
• Some cash-in-hand
• Lower monthly repayments
• A longer repayment term