Mortgage Specialist Heidi Hamano offers one stop service for a wide rage of mortgages.
One of the advantages of owning real estate is having access to equity of your home. More Canadians are using their home equity for debt consolidation, home renovation and other financial reasons.
To simplify it, refinancing mortgages allows homeowners to borrow additional funds at a renewed rate with new term and conditions.
The amount of loans homeowners can access can reach up to 80% of the appraised value of their home (OAC). At the time of refinancing, amortization can extend up to 30 years maximum, and rates can be set lower compared to the rates of other regular personal loans.
Each homeowner has their own valid reasons for refinancing their property that can result in a positive outcome, however, it is crucial to follow the proper steps to successfully secure another loan under more favorable terms.
Here is a list of steps you can take when deciding whether refinancing is an ideal option for you or not.
Step 1: Assessing your situation
The following examples may help you to validate if you have a good reason to apply for mortgage refinancing.
- You have personal debt and consolidating your credit card and other personal debts may reduce your overall monthly payment at a more favorable rate
- You may require funds to renovate your home
- You may require funds to assist your child’s education
- You may require funds to purchase another property
- You may require capital to enter into a new business venture (no business loan is available)
- Your current mortgage rate is higher than what the current rate is, and you want to save interest
Step 2: Evaluate if timing is right for you
Two crucial factors that will affect your decision in refinancing is the current assessed value of your property as well as the present interest rates. It is also beneficial for you to seek professional advice of the market from a mortgage specialist to reach a sound decision.
Step 3: Determine whether the monthly repayments of a refinanced mortgage is manageable under your current financial condition
Another deciding factors that should influence your decision is the equity of your home. Equity is defined as the difference between the appraised value of your property minus the remaining balance of your present mortgage.
Having an increased equity in your home does not necessarily mean you can afford to borrow more money. You not only have to consider paying a penalty of breaking your current mortgage, but also factoring in additional cost for lawyers and administrative fees.
Therefore, before you apply for a loan, you must ask yourself the following questions:
- Does it make sense to borrow money at this point or should I save up?
- If I proceed with the refinancing, how much can I afford to pay toward a monthly payment?
- Will I be able to pay off the mortgage if interest rates increase?
The more realistic answers you can come up with to these questions, the better chance you have at securing a mortgage which is most favorable to you.
Step 4: Shop around and explore your refinancing mortgage options.
If you have already done the math and have carefully considered your situation, then it’s time to explore your refinancing mortgage options to find the one that suits you best.
There are different refinancing options offered to homeowners with different circumstances.
- Refinance with a new mortgage. If your current mortgage is set at a higher interest and the remaining term is relatively long, you can use a mortgage calculator to determine whether refinancing a new mortgage will save you money.
- A second mortgage. A second mortgage is typically registered behind your original first mortgage and is considered a short- term solution. A second mortgage is beneficial if you want to avoid paying a penalty for breaking the original mortgage and money is required for a short period of time (to complete a renovation prior to listing a property, etc.). It should be known that the second mortgage rate is typically higher than the first mortgage.
- A home equity line of credit (HELOC). This works as regular line of credit, but the difference is that it is secured by your property, thus a lower interest rate.
- Reverse Mortgage. Another type of loan that can be secured is Reverse mortgage which is catered towards homeowners who are 55 years or older. Reverse mortgage allows property holders to remain at their homes while having access to monthly cash flow from their established equity.
Mortgage professionals have access to various lenders that offer different mortgage terms and interest rates.