Refinancing Your Mortgage: When and why you should consider it
Lots of homeowners think negatively when they hear refinancing being brought up. They tend to think it’s bad and something you shouldn’t do. Lots of homeowners think of their mortgages as something you should never change. But the reality is that your mortgage will and should evolve as your life goals, financial goals, or life circumstances do.
One of the most powerful tools to reshape your financial future is refinancing.
It’s not necessary for everyone but knowing when and why to refinance can make all the difference and set you up for success in the future.
Let’s break down the key reasons homeowners should consider refinancing and the right time to explore it.
Build high interest debt into the mortgage: Having money owing on credit cards, loans, and lines of credit can weigh you down, especially when the interest on some of those products can be upwards of 20% or 25%. So having the option to build that high interest debt into the mortgage, eliminate those payments, and relieve some stress is an amazing option.
Real client example:
Before refinancing:
5 credit cards, 1 personal loan, 1 auto loan totalling $65,000
Monthly payments on debts $2,050/month
Mortgage payment: $1,158.77/month (14 years remaining)
Total money out: $3,208.77/month
After refinancing:
No credit cards or loans
New mortgage payment: $1,522.60/month (19 years amortization)
Savings of $1,686.17/month and only having to increase the amortization 5 years to get a monthly payment that clients were more comfortable with
Getting a better rate to lower your payment: Sometimes debt isn’t weighing you down but you just happened to buy or renew at an unlucky time when rates were high. Refinancing could be an option to improve on the rate which would in turn improve on the monthly payment
Real client example:
Before refinancing:
Bought his home when rates were higher
No debt to add in
Rate: 5.59%
Biweekly payment: $857/biweekly
After refinancing:
New rate 4.39%
New biweekly payment: $705
Lowering your payment through amortization: Sometimes life might throw you some curve balls such as a partner losing their job, having to spend savings to buy a new vehicle or do a major fix on the home. You don’t know where you are going to make up the money and in that case we can adjust the amortization to lower the monthly payment.
Real client example:
This happened around the renewal time. Clients needed extra money moving forward. No extra debt yet but wanted to pull out $10k to put into their chequings as a buffer and extend amortization to create some monthly savings
Monthly payment went from $2,036.39/month to $1,528.40/month
Pull out equity to fund a renovation: Maybe when you bought the home, the basement was unfinished and you knew you would want to finish that someday. Maybe you decided that the home that you are currently living has almost everything that you need to make it a forever home, you just need to do some upgrades to get it there. That sounds like it’s time to refinance, pull some equity out, and do some renovations.
Standard refinance: we do the application as normal, the mortgages closes and you get the funds deposited into your bank account for you to start the renovation process
Refinance Plus Improvements: In this scenario, the value isn’t there YET but with a refinance it would be, and in this case we can submit the application based on the expected post-renovation value and get money to fund the renovation. Now the thing to note with this option is that there are restrictions such as total amount allowed to pull out, timeline restrictions (such as needing to be finished in 4 months or 6 months or 12 months. Just depends on the lender), extra appraisals, etc.
Pull out equity for down payment on a new property: Are you looking to buy a new home, your first rental property, your third rental property, or a vacation home and you don’t have the cash available but you do have equity available. Time to refinance and pull out that equity, so we can use it as down payment on that next property.
What you have to make sure with this option is that you give enough time for us to do the refinance before you start writing offers on the new home because you can only rush a refinance through to a certain extent and you don’t want to be stressed to remove the financing on the new home.
Add a Home Equity Line Of Credit: A HELOC can be a nice safety net for people’s peace of mind to feel prepared for an emergencies that might come their way. What if your hot water tank fails or your furnace fails and you don’t have the cash to cover that expense. Having availability on your home equity line of credit can cover that surprise expense and it’s going to be at a lower interest rate than a personal line of credit or a personal loan or credit cards. This can be easily added at your next renewal. If you don’t have a balance owing on the HELOC, there is no charge for having the the HELOC with a $0 balance
Removing an ex from mortgage and title: Life happens. Relationships dissolve. People go their separate ways. But maybe one partner wants to keep the home on their own while the other partner wants to start fresh. Then it’s time to refinance and remove one partner.
Real client example:
Husband and wife getting divorced (separation agreement is in place which is necessary in this situation). Husband taking over the matrimonial home. Wife buying new home.
So we refinance, remove the wife from mortgage and title, extend the amortization out so the husband feels better with the monthly payments now that it’s a single income situation. Then the wife gets pre-approved and puts an offer on a different home that she will carry on her own. Both parties now have their own mortgage separate from the other person and are ready to start their new life.
Refinancing isn’t about doing something just because you can. It’s about doing it because it makes sense for you. A quick review of your mortgage could uncover opportunities you didn't even realize were there. It could be the opportunity to reset your finances. It could be the opportunity to make sure your mortgage supports your current life.
When the timing is right refinancing can open doors you didn’t know existed. If you are interested in starting a refinance application, you can do so by clicking here.
