According to a recent study, mortgage refinancing loans increased by 156% from March 2019 to March 2020. This is due to both a dip in interest rates and a need for cash to help compensate for lost income. But is refinancing your mortgage a smart decision for you?
It depends. Let’s look at the pros and cons of mortgage refinancing.
How Does Refinancing a Mortgage Work?
A home mortgage refinance is different from a traditional homeowner loan. With traditional home loans, the prospective borrower works with a mortgage broker or bank to finance a new home. A home refinances loan ends your current mortgage and opens a new one.
A refinance loan allows you to apply for a mortgage at a lower interest rate. You can also change the conditions of your home loan. You may also be able to borrow extra cash by tapping into your home equity.
The Benefits of Refinancing a Mortgage in Canada
There are many benefits that lead people to refinance their mortgages. Let’s take a look at a few of the compelling reasons to seek a mortgage refinance loan.
Lower Mortgage Rates
A lower interest rate is one of the most compelling reasons to refinance your home. Refinancing your home at a lower interest rate will help save money and build equity faster. A lower interest rate can also lower your monthly mortgage payment.
Another thing that factors into interest rates is your credit score. If your credit score has improved since you opened your original loan, you might qualify for a lower interest rate if you refinance. Banks and brokers tend to look favorably on higher credit scores and can often secure lower interest rates.
Access to Equity
Refinancing your home can also give you instant access to your home’s equity. When you refinance, you are opening a new line of credit for more than you owe on your home and paying off your first mortgage with the new loan. What’s left is your home’s equity — the difference between what you owe on your home and what you have paid off.
This extra influx of cash can help in many ways, especially if you’ve struggled due to the coronavirus pandemic. You can use cash from home equity for home renovations, bill payments, medical expenses, and more.
Many people pursue mortgage refinance as a debt consolidation tactic. Mortgage interest rates are often lower than the interest rates found on credit cards or student loans. When you refinance your home, you can take the cash out and use it to pay down some of your unsecured debt.
Repair Your Credit
Refinancing your home to consolidate debt is a great way to repair your credit. By paying off high-interest loans and credit cards that are impacting your credit rating, you can drastically improve your credit score.
The Cons of Home Refinancing
One of the biggest things to consider when refinancing is whether the costs associated are worth what you might save. The costs of refinancing a home include bank fees, title costs, third-party costs, and escrow charges. An experienced mortgage broker can help you assess the pitfalls and the benefits of a mortgage refinance
What Is the Penalty for Refinancing Mortgage?
Mortgage penalties are also known as prepayment penalties. A prepayment penalty incurs when you pay a loan off before its maturity date. Many loan companies write a prepayment penalty into a mortgage contract, so read yours carefully before refinancing.
Refinancing Your Mortgage
Mortgage refinancing is a viable option for many homeowners. Before you make your final decision, it’s a good idea to contact a skilled mortgage broker to discuss your options. A mortgage broker can take your specific financial situation and help you make an informed decision.
Helping Canadians Find Flexible Mortgage Refinancing Options
At Turnedaway.ca, we help Canadians who find themselves turned down by other banks or are struggling to meet their financial obligations. Our mission is to help each client find a solution that improves their situation. Whether your goal is mortgage refinancing, a first-time home loan, a home equity loan, or debt consolidation, we’re here to help.