ULTIMATE GUIDE TO MORTGAGE REFINANCING IN CANADA
Refinancing a property is an investment strategy in which you terminate your present mortgage contract and pay off the current debt in whole by obtaining a new mortgage loan. This new loan does have its own set of terms and conditions, including a different interest rate than your previous mortgage loan. Refinancing your mortgage to borrow additional money entails borrowing against your home equity.
If your existing mortgage is less than 80% of the value of your property, you can refinance your mortgage up to 80% of the overall value of the property. property’s overall value The amount you are borrowing is the difference between the refinanced mortgage balance and your current mortgage balance.
Mortgage refinancing is a significant and long-term commitment. As a result, before approaching a lender, you must first assess if you have a compelling cause to request a loan.
The following are reasons that may lead one to apply for a mortgage refinancing:
- You intend to use the money to make improvements to your house
- You are considering purchasing a new home.
- You must save enough funds for your child’s education.
- You’re thinking of starting a new business but don’t have the needed capital.
- Refinancing your house is a debt consolidation approach.
- Interest rates have fallen to the point that refinancing your house can save you money on borrowing.
How much does it cost to refinance a property?
Mortgage refinance costs include mortgage registration and legal fees, as you are replacing your existing mortgage with a new one. A house appraisal will also be required. Other charges are determined by when and where you refinance.
You will be charged a mortgage discharge fee if you refinance by transferring to a different lender. Discharging adds your new lender to your property title while removing your previous lender.
If you refinance before the end of your term, you may be subject to mortgage prepayment penalties, depending on the kind of loan eg variable or fixed mortgage. You must talk to a mortgage professional (like one of our Mortgage Coaches) who can review your situation and calculate the penalty so that you can make an informed decision.
There are no prepayment penalties with open mortgages. You may also avoid prepayment penalties by refinancing your mortgage when it’s time to renew at the end of your term.
|Fee||If you refinance at the end of your term||If you refinance before the term is over legal legal|
|Home Appraisal Fee||Yes||Yes|
|Fee||Yes ( No if you stick with the same lender)||Yes ( No if you stick with the same lender)|
|Mortgage Prepayment penalty notes||No||Yes (No, if you choose a blend and extend mortgage)|
Mortgage Refinancing Alternatives
If the fees of refinancing are prohibitively expensive, you have a few additional choices to consider:
- Make an application for a HELOC. A Home Equity Line of Credit (HELOC) allows you to borrow against the equity in your property. You must have at least 20% equity in your house to be eligible, and the maximum credit amount is 65% of the home’s market value.
- Blend and stretch. Through a blend-and-extend choice, some lenders allow you to renegotiate your interest rate before the end of your mortgage term. This allows you to extend your existing mortgage term at a lower interest rate by mixing the new lower interest rate with the old one while avoiding prepayment penalties.
- Take out a second mortgage. A second mortgage is another means to access your home’s equity. It is issued in addition to your principal mortgage, avoiding prepayment penalties. However, interest rates are greater than for a mortgage refinance or a home equity line of credit.
A detailed step-by-step guide to complete refinance
- Information gathering – Have a solid sense of the estimated worth of your property, your current mortgage amount, your credit score, and your annual income.
- Connect with a Licensed Mortgage Agent: Start a conversation about refinancing your mortgage with one of our mortgage coaches Here? or a lender of your choosing.
- Loan Application: As part of a mortgage application, you will most likely be questioned about the information you provided in step 1 above.
- Pre-Approval stage: Based on this information, your broker will pre-approve the mortgage based on the information that you provided. The Pre-approval will include the mortgage amount, the interest rate and term and a period of the pre-approval is valid.
- Complete Mortgage Approved: During this period, you will make a full mortgage application to your lender to ensure that the lender is committed to funding the property given the down payment (equity in the house), credit, and income information that you provided.
- Questions and Answers: Please ensure that you do your due diligence to ensure that you understand all the conditions and terms before signing the mortgage documents since this is one of the largest financial commitments that most people have. Our team of coaches can assist you in this process.
- Mortgage Closing: The mortgage approval paperwork is signed, any relevant documents (employment letter, paystub, property tax information) are supplied to the lender, and an appraisal may be done (if required by the lender).
- Payout of funds – The new mortgage closes at your new rate, any debts you want to be paid off are automatically paid off by your lawyer, and any additional funds that you worked into your refinance are paid out to you either by certified cheque or direct deposit from the lawyer tasked with closing your refinance. One advantage of working with us is that we have trusted lawyers as part of our coaching teams.
- Mortgage Maintenance – Work with your Mortgage Coach over time to ensure that your strategy is on track and that you are always up to speed on possibilities to save more on your rate and cost of borrowing.
When you apply for a new mortgage, the mortgage stress test is performed. Because a mortgage refinance includes a new mortgage, your mortgage refinances lender will require you to pass the stress test before you can be authorized for the refinance. Your monthly mortgage payments may rise if you borrow additional money by tapping into your home equity. This may make passing the stress test more difficult. If you refinance your mortgage at a lower interest rate, your mortgage payments will be smaller, making it simpler to pass the stress test. Borrowers with poor credit may have difficulty obtaining approval for a mortgage refinancing from a big bank. Alternative mortgage lenders, such as credit unions and monoline lenders, might be an option for borrowers with weak credit who want to borrow additional money but have been rejected a mortgage refinancing. Working with one of our mortgage coaches will help you navigate the best option for your unique situation.
Differences between Mortgage Refinance and Mortgage Renewal
A mortgage renewal occurs after your mortgage term, which is typically five years in most cases though it could be shorter or longer. Most homeowners will be unable to pay off their mortgage in full after their term, necessitating the need to renew, refinance, or swap.
When you renew your mortgage, you maintain the same terms as your initial mortgage and use the same mortgage lender. Although your mortgage rate may fluctuate, you will be unable to raise the size of your mortgage to borrow more money. Refinancing is possible at any moment, not only after your term. You can borrow money for purposes such as debt consolidation. While there may be penalties if you refinance before the end of your term, you can still refinance after your term. Waiting until your term though will allow you to refinance your mortgage without incurring any additional fees.
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