Have you ever heard the term “remortgage” and wondered exactly what it entails? In Canada, remortgaging is a financial strategy that countless homeowners leverage for various benefits, from securing lower interest rates to tapping into home equity for large expenses.
Remortgaging basically involves replacing your existing mortgage with a new one, either with your current lender or through a different financial institution. This guide will walk you through what remortgaging involves, how it works, and why it might be a savvy financial move.
What is a Remortgage in Canada?
A remortgage, also known as refinancing, involves paying off an existing mortgage and replacing it with a new one. This can be done with the current lender or a different one. The primary goal of remortgaging is to secure better terms, such as a lower interest rate, reduced monthly payments, or accessing home equity.
Types of Remortgaging
- Rate and Term Refinance:
This type of remortgage involves changing the interest rate, the term of the loan, or both, without altering the principal amount of the mortgage. Homeowners typically pursue this to reduce their interest rate or adjust the loan term to better suit their financial requirements.
- Cash-Out Refinance:
In a cash-out refinance, homeowners replace their existing mortgage with a new one that has a higher principal amount. The difference between the old and new mortgage amounts is given to the homeowner in the form of home equity cash, which can be used for various purposes such as home renovations, debt consolidation, or other financial expenses.
How Remortgaging Works in Canada
The procedure of remortgaging your house involves several key steps.
- Firstly, it is crucial to evaluate your financial goals and reasons for remortgaging.
- The next step involves shopping around and comparing offers from various lenders to find the best rates and terms.
- Once a new lender is chosen, you’ll go through an application process similar to applying for your original mortgage. This includes assessments of your financial status, property value appraisal, and credit checks.
- After approval, your new lender will pay off your existing mortgage, and you will start abiding by the new terms and conditions agreed upon.
Different ways to Remortgage Your House
Remortgaging can be done with either your existing lender or a new lender, each with its own set of procedures and considerations. Here’s a detailed guide on how to remortgage with both:
Remortgaging with Your Existing Lender
Since your current lender already has your financial information and mortgage history, the process can be quicker and less cumbersome. You may avoid certain fees, such as appraisal or legal fees, which can be lower when staying with the same lender. Some lenders offer better rates or terms to existing customers as a loyalty incentive.
Remortgaging with a New Lender
New lenders may offer more competitive rates and terms to attract new customers. You might find more favorable loan terms, such as a lower interest rate, reduced monthly payments, or better repayment conditions. Some lenders offer special incentives for new customers, such as reduced fees, cashback offers, or other perks.
Benefits of Remortgaging in Canada
Remortgaging can provide several advantages for homeowners, from potentially reducing financial burdens to accessing funds for additional expenses. Understanding these benefits can help you make a wiser decision about whether remortgaging is right for your financial situation.
- Given that mortgage rates fluctuate, locking in a lower rate when rates have dropped can significantly reduce your monthly outlay. This reduction in payments can free up cash for other monthly expenses, savings, or investments, providing more financial flexibility.
- If you have multiple debts with high interest rates such as credit card debt, car loans, or other personal loans you could pay off those balances by remortgaging your home for a higher amount.
Another significant advantage of remortgaging is the ability to access home equity without selling your property.
Is it Possible to Remortgage with Bad Credit?
Remortgaging with bad credit can be challenging but is certainly possible. If you have a poor credit history, you might face some obstacles, but there are specialist lenders who cater to individuals in this situation. Mainstream lenders often hesitate to offer remortgages to those with bad credit. However, there are many bad credit mortgage lenders who understand the needs of people with less-than-perfect credit scores and help them in getting remortgage approved.
A mortgage broker can be an invaluable resource when it comes to remortgaging in Canada. They have access to a wide range of mortgage products and lenders, and their expertise can help you secure a better deal.
The brokers at TurnedAway.ca provide personalized advice based on your financial situation, including your credit score, income, and home equity. They can recommend the most suitable remortgage options and help you understand the benefits and drawbacks of each. By working with TurnedAway.ca, you can navigate the process more effectively and make informed decisions that align with your financial goals.
Frequently Asked Questions on Remortgaging
Can I remortgage my house for the full amount of its value?
Typically, you can remortgage up to a certain percentage of your home’s value, usually between 65% and 80%. This is known as the loan-to-value (LTV) ratio. The exact amount you can borrow depends on the lender’s policies, your creditworthiness, and your financial situation. It’s uncommon to remortgage for 100% of your property’s value, as lenders prefer to have some equity in the property as security.
Will I receive money back when I remortgage my house?
Yes, you can get money back when you remortgage, a process known as “cash-out remortgaging.” This allows you to release equity from your home, meaning you borrow more than your existing mortgage balance and take the difference as cash to use it for other financial needs.
When is the best time to consider remortgaging option?
The best time to remortgage is typically when your current mortgage deal is about to end, especially if you have a fixed-rate or discount offer. Doing this at the end of your deal can help you avoid automatically switching to a higher Standard Variable Rate (SVR).
Are there any costs associated with remortgaging?
Yes, there can be costs associated with remortgaging, including early repayment charges on your current mortgage, arrangement fees for the new mortgage, and valuation or legal fees. It’s important to weigh these costs against the potential savings to determine if remortgaging is financially beneficial for you.
