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10 Apr

Smart Decisions: Why You Should Refinance Your Mortgage?

Mortgage Refinancing

Posted by: Krishna Menon

Just because you already have your mortgage setup doesn’t mean you should just leave it at that. You should always consider if you’re getting the best possible rate and term, especially when your mortgage is up for renewal. So, are you getting the best deal?

You Don’t Have to Wait for Renewal to Refinance

It’s not necessary to wait until maturity though. Refinancing your mortgage at any time can lead to substantial savings throughout the years to come, even with any penalties your lender may charge you for these changes.

How Refinancing Can Help with Debt and Interest Reduction?

If you refinance you can gain access to your home equity, reduce your debt, support life-changing events or finance that home renovation you’ve been dreaming about. The best part, you can do this all at a lower interest rate. The worse thing that can happen in situations like these is missing your mortgage or debt payments due to your inability to manage, thus negatively impacting your credit score.

Having a significant amount of debt can become quite stressful and difficult to manage. At least 10 percent of Canadians choose mortgage refinancing as the best mortgage solution for them, and one of the main reasons was to consolidate debt. You can opt-out by refinancing and this can help to relieve that stress. You’ll then be able to replace your existing mortgage with a new one, that’s most often larger as well. As the borrower, you can can gain access to the difference up to 85 percent, which is a great strategy to reduce debt in Canada.

The Next Steps Towards Refinancing

Research is the next step towards refinancing. You’ll need to determine what the principal balance is on your existing home mortgage. This way you’ll be able to compare it to recent house sales in your area. The average sales price of other homes in your neighborhood can be used as a general indication for your home value as well. So, long as you own more than 20 percent of your home, refinancing could be the way to go.

The second step here is to get your credit into tip-top shape, although you can still refinance with poor credit. Better credit works for you in achieving a better rate.

Next, you’ll need to get all of your documents together, including:

  • Mortgage statements
  • Property tax assessments
  • A letter from your employer
  • Pay stubs
  • Income tax notice of assessment (last 2 years)

Once you’ve gathered all the required documents, then you can focus on learning more about your penalties, new term, new rate and potential savings. Calculating penalties and savings can be complicated since penalties and savings will vary by lender. Your mortgage broker can work with your lender to provide you with these figures.

Don’t wait for renewal to do what’s best for you in the long term, talk to a mortgage professional to find out about low-interest options that alleviate your financial stress and offer you financial freedom down the road.