There are many reasons why you might want to review refinance options; to increase your existing mortgage for investment purposes, consolidation of non-mortgage debt, to finance improvements to your home, etc.
Let us help you negotiate with your existing lender or switch to a new lender who will give you a more favourable rate. There are many factors to consider when refinancing your mortgage.
Here’s a bit of what you need to know:
Access Equity for investment
If you are contemplating investing in Real Estate and want to use equity that you have created in your residence as down payment monies it is vital that you begin the process in advance of making an formal offers on additional properties. The limitations with some lenders that multiple properties entail can create a very stressful situation if you are trying to complete multiple transactions at once. i.e. a refinance of your home and a finance on a new property.
It is all about taking the right steps at the right time and creating access to said equity in advance, well in advance, of requiring it.
If you plan is to potentially move from your residence and rent it out, then once again creating the proper mortgage structure in advance is vital and can save you thousands, tens of thousands of dollars.
Consolidate other debt
Most unsecured debt is priced by your bank at a higher rate than your mortgage in order to compensate them for the higher risk of loss if you default. For many people it only makes sense to use available home equity to pay out this debt, as it typically reduces interest costs significantly. If the total of the existing mortgage and the debt to be refinanced is less than 80% of the value of your home, and you qualify in terms of income and credit standing, refinancing your first mortgage should be a breeze.
Renovations & home improvements
If you want to spend a significant amount of money on improving your home, you may be able to take out a lot more equity than you realized! We can advise you through this process. All three insurers — AIG, Genworth and CMHC, will insure new mortgages which are “topped up” for this purpose, and the total of your current mortgage and the new funds exceeds 80% of the current home value. Not all improvements are eligible, however. Pools and spas are typical “over-improvements” which may not qualify for a high-ratio equity take-out. Of course, if the total requirement is less than 80% of your home’s current value, you should have little trouble getting the “top up” you need — regardless of the degree of luxury you plan to add.
Combining existing mortgages
Where the combined mortgages result in a new “conventional” mortgage:
High ratio insurance is not required. As long as you qualify with your income and credit standing, I will help you achieve this quickly and conveniently.
In both cases there is one critical consideration which causes the failure of many such refinances. The new mortgage often requires a fraction of the cash flow previously needed to service the now consolidated debt. Many who go through this process not only absorb the cash flow savings into an improved lifestyle — they either re-incur debt that they paid out, or incur debt for which they now qualify — or both. It is important to approach such a consolidation/re-combination of obligations with the clear and focused goal of applying all savings toward paying down the mortgage. Otherwise, the new mortgage will be a burden, rather than a solution.
Breaking a closed mortgage to transfer to a new lender
Many closed mortgages have the feature that allows the balance to be paid out with a penalty after a certain time has elapsed on the mortgage. Check the “prepayment” clause in your mortgage to determine your own situation, or better still, call your institution and ask them the cost of paying out in full.
The most dramatic savings for clients today is for those who entered into a 10 year fixed mortgage 5 years or more ago. The penalty to break this onerous mortgage is only 3 months interest and the savings is rapidly recovered at todays far lower rates.
Just as a ten year fixed was an (avoidable) mistake 5 years ago, so in my opinion it remains a avoidable mistake for the majority of clients. For some information on why in fact a 2 year fixed for instance might make greater sense click here and here.