Essential Things to Ask Before Refinancing Your Mortgage
Mortgage refinancing is taking out a new loan to repay your existing mortgage
You may do this to take advantage of lower interest rates, to change the term of your loan, or to tap into the equity you've built up in your home.
Refinancing your mortgage means taking out a new loan to pay off your existing mortgage. You may be able to get a better interest rate, which could save you money over the life of the loan, or you may want to refinance to tap into the equity in your home. However, refinancing is not right for everyone, so do your homework before deciding.
In today's article, let's explore some essential questions you need to ask before you decide to refinance your mortgage. Here's what you need to know:
"What are My Debt Servicing Ratios?"
There are two debt servicing ratios—the housing expense ratio and the total debt service ratio.
Your housing expense ratio is the percentage of your monthly income that goes towards your housing expenses, which includes your mortgage payment, property taxes, and heating costs. Your total debt service ratio is the percentage of your monthly income that goes towards all your debts, including your mortgage, car payments, credit card payments, and any other debts you may have.
You'll need to know your monthly income and debt payments to calculate your debt servicing ratios. You can find this information on your pay stubs and your bills. Once you have this information, divide your monthly debt payments by your monthly income. This will give you your debt servicing ratios.
"What's My Current Home Equity?"
If you're considering refinancing, there are a few things to remember. First, you'll need equity in your home to qualify for a refinance. If you don't have enough equity, you may not be able to get a new loan, or you may have to pay for private mortgage insurance.
Second, the amount of equity you have will affect the interest rate offered on a refinance. The more equity you have, the lower your interest rate will be.
Lastly, when you refinance, you're essentially taking out a new loan to pay off your existing mortgage. This means you'll have to go through the entire loan process again, including getting approved for a loan, shopping for the best interest rate, and closing on the loan.
"How Much Will it Cost to Refinance?"
There are a few costs associated with refinancing your mortgage. First, you'll have to pay any closing costs associated with the new loan. These include appraisal fees and loan origination fees,
If you refinance, you may also have to pay a prepayment penalty to your current lender. This is typically a fee equal to a percentage of your outstanding loan balance. Finally, you'll need to factor in the cost of any points you pay to get a lower interest rate on your new loan. One point equals one percent of your loan amount.
THE BOTTOM LINE
There are a lot of things to consider before you go ahead with refinancing your mortgage. You need to consider your current financial situation, your goals for the future, and the terms of your new mortgage. You also need to be sure you can afford the new monthly payment. Refinancing can be a great way to save money, but doing your homework first is essential.
Do you want to learn more about mortgage financing in Canada? Level Up Mortgages supports homebuyers and homeowners in attaining success in their mortgage journey with mortgage strategy, digital mortgage education, and introductions to all the other experts you need to succeed in home buying and personal finance. Level Up Mortgages makes it easier for new buyers, real estate investors, and even the self-employed to find the funding they need. If you are looking for conventional or private lending in Canada, get in touch with us today!
See what you qualify for or contact Paul to get your pre-approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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