What is Refinancing?
Refinancing your mortgage is when you pay off your existing mortgage and set up a new mortgage. Homeowners have the option to refinance their mortgage with their current lenders or find a different lender. Majority of Canadians choose to refinance their mortgage, as to take advantage of lower interest rates, there are other things to consider too when refinancing including: amortization periods, penalties, hidden costs, and switching to another lender.
Homeowners should refinance their mortgage if it makes sense to do it. This decision is a personal decision made by the homeowner and should be decided after looking at a lot of different factors. It is time to refinance your 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
- Access the equity in the home to buy investments or purchase another property
- Tap the equity to pay for renovations, tuitions or increase retirement income
It is always a good idea to review your mortgage every year. Canadian homeowners spend thousands of dollars on their mortgages and this is money that could be saved or invested elsewhere.
There are several options available to Canadian homeowners looking to refinance their mortgage: breaking the existing mortgage early, taking out a home equity loan and a home equity line of credit.
Breaking the existing mortgage early
One of the most popular reasons for breaking the existing mortgage early and refinancing is to take full advantage of lower interest rates, consolidate debt or access equity in the house. By finding a lower interest rate this will help homeowners save money, while lowering their interest payments and help with consolidating debt. Lower interest rates make it cheaper to borrow money, especially if you are looking for money for some home renovations.
Add a home equity line of credit
If you are looking to do major renovations on your home or paying for your child’s tuition, adding a home equity line of credit is an easy and inexpensive way to borrow money. With the home equity line of credit (HELOC) gives the homeowner access to equity that they’ve built up in the home. Equity is built up in a home every time a mortgage payment is made or when the value of the home goes up.
A HELOC is different from breaking the existing mortgage. With a HELOC homeowners 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 borrowed amount, just like the original mortgage.