Our Blog

How Do You Know If You Should Refinance a Mortgage?

Refinancing a mortgage is when you pay off the existing mortgage and set up a new mortgage. Homeowners can choose to refinance with their current lenders or find a different lender. There are a lot of reasons to consider when deciding whether or not to refinance a mortgage. While most people chose to refinance simply to take advantage of lower interest rates, there are other things to consider too, including amortization periods, penalties, hidden costs, and switching to another lender.

The fact is, homeowners should consider refinancing their mortgage if it makes sense to do it. How to tell exactly when or if it’s time to refinance a mortgage is a personal decision that should be decided after considering a lot of different factors.

Ultimately though, property owners refinance to improve the terms of their current mortgage. The first step is to determine what you want to accomplish. It’s time to refinance a mortgage if you want to:

• Take advantage of low interest rates
• Replace an adjustable mortgage with a fixed-rate mortgage
• Increase the amortization period to lower mortgage payments
• Shorten the amortization period to pay off the mortgage more quickly
• Consolidate high-interest credit-card debt
• Access the equity in the home to buy investments, purchase another property
• Tap the equity to pay for renovations, or tuition, or increase retirement income

That said, it’s a good idea to review the mortgage every year. That’s because Canadian homeowners spend thousands of dollars on their mortgages; money that could be saved or put to better use elsewhere.

Nothing is free though; refinancing a mortgage has its costs. There are penalties and fees associated with refinancing a mortgage. The penalty for refinancing a mortgage is usually three months’ interest at the current rate.

But banks want to keep their clients, so there is a lot of leeway. For example, if you discuss refinancing a mortgage with another lender and tell them you want to move the rest of your banking business their way (RRSPs, accounts, etc) they may pay off some or all of the penalties.

Even if the closing costs and penalties are not covered, this doesn’t mean it’s not a good idea to refinance a mortgage. It’s just important to weigh the costs and be sure you’re making a good decision.

What Are the Different Ways of Refinancing a Mortgage?

There are a number of options available to Canadian homeowners looking to refinance their mortgage: breaking the mortgage early, taking out a home equity loan, and a home equity line of credit (HELOC).

Breaking the existing mortgage early

One of the most popular reasons for breaking a mortgage early and refinancing is to take advantage of lower interest rates, consolidate debt, or access the equity in the home. Finding a lower interest rate and consolidating debt will help homeowners lower their interest payments and save money. The lower interest rate will also make it cheaper to borrow money for renovations, etc.

In these cases, it’s a good idea to renegotiate the existing mortgage and take on a new one with a new lender; one that understands your short and long-term financial needs.

Add a Home Equity Line of Credit

For those thinking of making renovations on their home or paying for their child’s tuition, an HELOC is an easy and inexpensive way to borrow money. An HELOC is basically a revolving line of credit that gives homeowners access to the equity they’ve built up in their home. Equity is built up in a home every time a mortgage payment is made and when the value of the home increases.

An HELOC is different from breaking a mortgage. With an HELOC, property owners are only responsible for the interest payments each month on the outstanding balance. When a mortgage is broken and refinanced, the homeowners need to make set monthly payments on the amount borrowed, just like with the original mortgage.

If refinancing a mortgage sounds like it might be the right choice, talk to a mortgage lender near you and determine what the best options are. Just remember, do the math and make sure you’re getting what you want with the refinanced mortgage.

Canadalend.com, Helping Canadians Consolidate Debt

There is a lot to consider when deciding whether or not it’s a good time to refinance a mortgage. The mortgage experts at Canadalend.com can help you refinance your mortgage.

Our licensed mortgage agents will explain the refinancing process and help decide if refinancing a mortgage is a good option. If the time is right for you to refinance the mortgage, we’ll help you find the lender best suited to your lifestyle needs.

Because the mortgage professionals at Canadalend.com are independent, we have access to hundreds of different lenders. Canada’s big banks will only offer you their products; whether they’re best suited to your needs or not.

This gives you the peace of mind to know that Canadalend.com is helping you build value and save money.

To find out what your mortgage refinancing 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.

Timing is a tricky thing. When it comes to finances, it’s sometimes hard to know whether one should be proactive or reactive. There’s even a tendency to put things off until things have hit rock bottom or until every star has aligned.

This isn’t to say there’s a right way or a wrong way when it comes to taking on a loan or accumulating debt. These are big decisions and there’s quite a few variables to wade through.

Let’s look at some factors that should be considered when deciding if now is the right time to apply for a home equity loan.

Why do I need the Loan?

This might be the biggest question. You never want to take a loan or put your house up as collateral unless the reason is a good one. There are a ton of good reasons—medical emergency, business opportunity, home renovations.

If the reason feels legitimate then the timing is probably legitimate as well.

Will I get the Best Interest Rate and Repayment Plan?

It’s a simple question: will you get the best deal when you apply? If you believe that there’s a better interest rate around the corner or that you can improve your credit score, then the best advice might be too wait.

Timing isn’t just about what’s happening in your life. It’s also about what’s happening with the lender and if you can secure the best deal.

What if my Situation Changes?

If you need the money today but believe that your situation can change, then it still might make sense to borrow money against your home. In this case, the solution might be a home equity line of credit where the funds will be available to you. Like any line of credit, you only must pay back what you use so if your situation changes then no harm done.

Applying for loans is a big deal and the timing must be right. Be honest with your situation and logical and, most importantly, speak with a professional who can help guide you to the right decision.

Refinancing vs. Home Equity Loans

Your house is more than just a place to live and a great long-term investment. It can also be a great source of money should you need it. Those who have lived in their homes for a number of years have probably come across the terms “refinancing” and “home equity loans”; while they’re often used interchangeably, they’re actually vastly different. What they do have in common is that they relate to accessing money using your home.

What’s the difference between refinancing and a home equity loan? When you refinance, you are simply replacing an old mortgage with a new one. Home equity loans, on the other hand, allow you to access the equity you’ve built up in your property. A home equity loan does not replace your mortgage. If you take out a home equity loan, you still need to make payments on the original mortgage.

Home Equity Loans

Homeowners who need to access money to renovate their home, buy additional property, invest, buy a car, help pay for university tuition, etc. might want to consider a home equity loan. Because the interest rates are lower and the money is secured against the property, it’s less costly than taking out a traditional loan.

One of the biggest differences between a home equity loan and refinancing a mortgage is that the closing costs are a lot higher when you refinance a mortgage. That being said, interest rates are higher for home equity loans.

Those who do not expect to live in their home for a long period of time might want to look into getting a home equity loan. That’s because you’ll pay the loan off when you sell your property and won’t be stuck with higher interest rates for very long. Since you’re not refinancing the original mortgage, you’ll be able to take advantage of reduced closing costs.

What’s the downside? Well, because a home equity loan is secured against your property, if you default on your loan, the lender will come after your house.

There are two types of home equity loans: a home equity loan and home equity line of credit (HELOC). They sound alike but are very different. A home equity loan is similar to a first mortgage (and is often called a second mortgage): you get an upfront payment that is repaid over a fixed period of time. A HELOC, on the other hand, is a revolving line of credit.

Refinancing

When you refinance, you get a new lender to pay off your old mortgage in exchange for a new one—ideally at a lower rate. If you have high interest debt, it can make a lot of sense to refinance a mortgage as the interest rates with refinancing are significantly lower than higher interest rate credit cards and loans. Consolidating these debts into a mortgage at a lower interest rate will also help save money.

If you intend to stay in your home for years to come, it might make more sense to refinance the property. If you get a loan with lower interest rates or increase the amortization period, you can reduce the monthly payments. You should also be able to recover any closing costs too.

Refinancing a Home Equity Loan

If you’ve got high-interest debt or other costs, you may want to consider rolling the home equity loan into your mortgage. While many homeowners refinance a home equity loan to unlock the equity in their home, it doesn’t mean you have to take money out of your home. You might want to refinance simply because you can find better interest rates or terms.

Or maybe you want to refinance a home equity loan to add a line of credit. For example, if the original mortgage you received was based on bad credit and your credit has since improved, refinancing a home equity loan can save you a lot of money.

Thanks to the strong appreciation in housing prices across the country—especially in Toronto, the Greater Toronto Area, and Golden Horseshoe—most homeowners have accumulated a huge amount of equity in their homes.

When it comes to refinancing a home equity loan, it’s important to shop around and see what different banks, mortgage companies, and private lenders are offering. Home equity rates will vary, and some lenders will be more suited to your needs than others. Some specialize in helping those who have bad credit, declared bankruptcy, or are self-employed.

There are a lot of different financial products out there, and homeowners need to be careful and should know exactly what they’re getting into when tapping the equity in their homes.

Canadalend.com—Helping Canadians Consolidate Debt

Whether you’re planning to make major renovations to your home, important purchase, investment, or consolidate high interest rate debt, the trusted mortgage professionals at Canadalend.com can help you refinance your home equity loan.

We’ll evaluate your currency financial position and help you determine which loan product is best suited to your needs: refinancing, home equity loan, or HELOC. With access to hundreds of different lenders, we’ll find you the right home equity loan.

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 loans are simple yet are sometimes treated as complicated. It’s a type of loan that allows a person to borrow against the value of their home, and to take advantage of equity they’ve built up.

Most industry experts express that homeowners should take more advantage of home equity loans, believing it to be a viable treatment of their best asset.

Here’s some basics that are important for everyone to know.

Low Rates, Relatively Easy Approval and Potential Tax Benefits

Typically, with home equity loans you can receive a fair interest rate, especially when compared to other loans. While not guaranteed, most homeowners can get approved even if they have bad credit, because your home is strong collateral.

As well, interest on a home equity loan can potentially be tax deductible, but not in every case. This is one question you will want to ask your accountant.

Large Amounts for Borrowers and Secured Loans for Lenders

Home equity can help you access a large sum of money if you need to overcome financial difficulties. It can also help you pursue a business opportunity or to fund an education or deal with a medical emergency. These things cost money, sometimes more than you have liquid in savings.

These loans are secured loans because banks feel comfortable extending you a loan based on the equity in your home.

You can borrow with a Home Equity Loan in Two Ways

Borrowers have two options when they are approved for a home equity loan. They can receive a lump sum or it can be dispensed as a line of credit. With a line of credit the money will be made available and you only repay what you use.

The way you borrow effects the repayment plan and accrued interest.

Be Wise in how you Borrow when your Home is Involved

As with anything, there are some pitfalls with home equity loans. Since your home is involved you don’t want to borrow against it to travel or repay a credit card. It is best used in specific situations and can be incredibly beneficial in those circumstances.