Buying your first home can be an exciting and stressful time. But many homeowners find refinancing their mortgage for the first time to be downright nerve-racking. What do you need to know about refinancing a mortgage? From different rates and amortization periods to penalties and looking for a different lender, there is a lot to consider when refinancing a mortgage. Below are five things you need to know about refinancing your mortgage.
Things To Know before You Refinance Your Mortgage
Take Advantage of Low Interest Rates
Homeowners refinance their mortgage for many different reasons. But most homeowners in the GTA refinance their mortgage loan to take advantage of lower interest rates and lower monthly payments. After all, refinancing a mortgage with a lower interest rate of just one percent can save homeowners a lot on their monthly payment. Even monthly savings of $150.00 to $200.00 can have a big impact on a family’s budget.
Extend or Reduce the Amortization Period
Amortization, or the length of time it will take you to pay off your mortgage, is another thing homeowners in the GTA should consider. A family’s financial situation may have changed since getting the first mortgage and it might just make sense to refinance with a shorter or longer amortization period.
If you find your finances have improved, it might be a good idea to refinance a mortgage with a shorter amortization period. Increasing mortgage payments can lower the amortization period by five or more years and save tens of thousands in interest payments.
It’s also quite possible that the family budget has been stretched thin and you want to free up some capital. In this case, refinancing a mortgage with a longer amortization period might be the best thing to do. It will take longer to pay off the mortgage and lead to more interest payments, but it could free up $100.00, $200.00, $300.00, or more a month.
Know the Penalties
Most homebuyers only pay attention to the rate and amortization period; while these are important, so too are payout penalties and pre-payment privileges. Talk to your mortgage broker and go through all the loan documents to make sure you understand everything in detail.
If you refinance your mortgage early, you will be hit with some penalties. But don’t let the idea of a penalty discourage you. Know the numbers. Refinancing early to a lower interest rate can save you a lot of money in the long run.
The penalty for refinancing a mortgage early—if you have a variable rate mortgage—is three months’ interest. If you have a fixed mortgage, you will have to pay the greater amount of either three months’ interest or the interest rate differential penalty (IRD). The IRD can vary depending on the lender, but it’s typically an estimate of the amount of interest the lender would get on the remaining principal.
Along with the penalty, there may be other fees associated with refinancing a mortgage early.
Even with the penalties, it can be worth it to refinance a mortgage early. For example, if the penalty to refinance a mortgage for a homeowner in Ontario is $2,000 but they save $150.00 per month, it will take approximately 14 months to break even; this more than cancels out the costs of refinancing a mortgage early.
If you’re thinking of refinancing your mortgage, ask a mortgage broker—who should have access to hundreds of different lenders—to show you more than just the lenders with the best mortgage rates. That’s only part of the equation. You should also get a list of the available lenders and take a look at their penalties.
Do You Have Good Credit?
To get the best rates when shopping for a mortgage, it’s important to have a good credit score. This shows lenders you are good with your money and you will be able to pay your mortgage. Lenders see a low credit score as a risk and most lenders will not give the borrower the time of day. The same thing can happen when you’re refinancing. The current lender may add a premium to the mortgage refinancing rate if they think you’re a credit risk. This means you will not get the best rates on refinancing options.
Refinancing is not just difficult for those with bad credit. In 2014, the Canadian Mortgage and Housing Corporation discontinued mortgages for those who are self-employed and don’t have third-party validation. More than15% of Canadians are self-employed.
Canada’s big banks also don’t give their best refinancing rates to those who have incurred debt, lost their jobs, or recently declared bankruptcy.
Fortunately, there are lenders out there who specialize in helping those looking to refinance but have bruised credit, are self-employed, or have irregular incomes.
Should you refinance your mortgage, even if you have bad credit, or just stay with your current lender? When it comes to refinancing a mortgage, it’s always a good idea to shop around. Big banks and trust companies will only offer you the financial products they provide even if they’re not best suited to your financial needs. A private broker on the other hand can have access to hundreds of different lenders. Many of whom specialize in helping those with bad credit, who do not have a long enough income record, are self-employed, or have declared bankruptcy refinance their mortgage.
Talk to your current lender and speak to a private mortgage refinance broker to see how they can help. After all, there’s more to refinancing than rates and fees. Refinancing a mortgage is about helping the homeowner meet their long-term financial and lifestyle needs.
Canadalend.com—Helping Canadians Refinance their Mortgages
Is it time for you to refinance your mortgage, or are you thinking of breaking your current mortgage to refinance? The Canadian housing market is one of the most resilient in the world, and with interest rates expected to remain near record low levels in 2017 and 2018, it’s an excellent time to refinance a mortgage.
Canadalend.com is the nation’s leading low-cost private mortgage solution provider and the top destination for those looking to refinance their mortgages. If you want to refinance your mortgage with the best rates and terms, talk to a licensed, independent agent at Canadalend.com.
We work with a network of hundreds of different private lenders and will help evaluate your financial situation and consider all your mortgage refinancing options.
To find out what your options are, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.