Every year our team recommends a quick review of your mortgage and overall financial picture. The majority of those annual reviews lead to quick and simple changes such as a payment increase to tackle your mortgage debt quicker, making a one time lump-sum payment or a change to the payment schedule to better line up with payroll dates. However, sometimes the conversation changes to discussions around the options available for refinancing your mortgage.
In short, a refinance is the restructuring of your mortgage to access equity which has built up over the years of the client making their mortgage payments in combination with regular growth in the value of the home. That equity, can be accessed by the client through a refinance process. A refinance can happen during the current term of your mortgage or on renewal date. Understanding which option is best comes down to a benefit/cost analysist to ensure that the refinance will improve your overall financial picture.
NOTE: A refinance is not always the answer and may not put you in a strong financial position. Its important to review what your needs are and balance those with the potential costs of breaking a mortgage term vs. the savings that you will generate. A great Mortgage Broker will make sure you understand all of this before proceeding.
Here are some of the most common reason a mortgage holder would consider a mortgage refinance.
- Reduce Your Monthly Mortgage Payments
Sometimes life will throw us a curve ball; a strike at work, job layoff, sick family member, the list is endless. Those curve balls might make your current mortgage payments a bit more than you can handle. By refinancing your mortgage, you can re-amortize the payments for a longer term, reducing the minimum monthly commitment that you have to make each month, freeing up your cashflow to address everyday living expenses.
- Consolidate credit cards, loans, or other unsecured debt into a new low interest rate mortgage
If you find yourself in a position where you are paying a significant amount in interest payments every month on your unsecured debt, then refinancing might be a great solution. Credit cards often come with interest rates around the 19% range and unsecured lines of credit tend to be around the Prime + 4 range or higher. These high interest rates can make it difficult to actually tackle the debt and the add additional monthly payments into your personal budget. Accessing the equity in your home by way of a refinance can allow you to pay off those debts and consolidate them into one, low interest, mortgage payment.
- Finance home renovations
Perhaps you need to complete some much-needed home renovations that are either planned or unplanned but you currently do not have enough money set aside for the projects. Rather than using a line of credit (or worse a credit card) you can refinance your home, pull out the equity, and cover the cost of the renovations using the home equity. This debt would then be worked into your new mortgage at a much lower interest rate, while at the same time you’re increasing the resale value of your home. Ask us about how a Refinance Plus Improvements mortgage might work well for you.
- Planning for a big purchase.
Thinking about buying a car, an rental property, investing money in a business, early inheritance to family, covering education costs for a child or grandchild? The list is endless. The equity you have in your home can be used for anything like this and can be much cheaper than financing a similar plan by way of unsecured debt.
- Finding a new Lender
Not all mortgages are created equal, the rates are always changing, some are no-frills, and some have great features. Or, maybe you are simply frustrated with the service that you are receiving from your current lender. Depending on what you are looking for, refinancing may put you in a better position to take advantage of lower interest rates or the ability to pay off your mortgage faster.
With mortgage financing, it all comes down to finding the right plan and product to fit you needs. Take the time annually to review your financing and if you think that one of the above refinance reasons hits close to home, give our team a call. We are here to review those options with you, discuss the pros/cons and help guide you to a solution that meets your household needs!