Why Is Refinancing One of the Best Mortgage Strategies?
If you're looking to save money on your mortgage,
you may consider refinancing mortgage strategies in Canada. Refinancing is the process of taking out a new loan to replace your existing mortgage. This new loan can have different terms than your original loan, saving you money over the life of the loan.
Because mortgage rates are still relatively low and there is a lot of value and equity in homes across Canada, now may be the perfect time to refinance your mortgage.
What Is A Mortgage Refinance?
A mortgage refinance is getting a new mortgage on your house. It means refinancing your existing mortgage with a new one.
With no penalties or breaks, this new loan may be made with your current lender as an "add and blend" with the existing debt. Alternatively, the mortgage could be transferred to a different lender. Brokers weigh each scenario's financial rewards and drawbacks to determine the best course of action.
Since you are essentially starting over with the mortgage, you have a few options:
Rate (Fixed or Variable)
Mortgage Term
Payment (Would you rather have a higher payment by having the amortization be shorter or a lower payment by having the amortization be longer? Noting that both circumstances offer prepayment possibilities!)
Mortgage Principal (depending on your goals, you could decide on less, more or the same amount of mortgage balance)
To access home equity, refinancing or "restarting" may be done at any time throughout the mortgage's term, on the renewal or maturity date, or even after the loan has been fully repaid.
The Mortgage Refinancing Process
Determine the rough value of your home.
Approximately what percentage of your home's value is that?
The maximum mortgage amount for a home is frequently 80%. Therefore for your refinance, that is roughly how much we have to deal with.
What portion of your present mortgage remains unpaid?
Subtract the balance of your current mortgage from the 80% value of your home (the first thing we need to do is pay out your existing mortgage).
The result will determine the additional home equity you have to deal with.
You can use the additional home equity to invest, make upgrades, pay off debt, or do anything else you wish. It is NOT REQUIRED to employ all of the available equity.
Why Must A Mortgage Be Refinanced?
A refinance mortgage can be used for pretty much anything you can think of. To assist you in achieving the greatest results, below are some of the most popular refinancing options and advice:
Refinancing Your Mortgage to Lower Your Rate
Never take your present lender's or any bank's initial offer for a rate.
Use a reliable mortgage broker's service or do your loan comparison shopping to discover a lower rate.
Make sure the small print is adaptable enough to consider future developments in real estate and other areas of life.
More precisely, this flexibility will help you pay off your new mortgage faster and shield you from unanticipatedly high penalties, fines, or rates when your loan is up for renewal, as well as from other potentially expensive expenditures that may be buried in the small print.
Consider if you would save more money with a variable or fixed rate at this point and stage in the economic cycle.
Refinancing a Mortgage to Consolidate Debt
Compare and contrast lowering your credit limit with closing your account.
If you want a certain credit card or credit line to remain open or accessible after the refinance is finished, ask your mortgage broker in Canada or lender for this; otherwise, it could be terminated indefinitely.
If your total monthly payment lowers due to ceasing to make loans or other credit installments, consider increasing your mortgage payment to pay off your mortgage sooner.
If you increase your mortgage payment, you will still benefit from making a single, simple payment and will pay off your loan more rapidly, resulting in even higher interest savings.
Suppose these extra mortgage payments are properly set up using mortgage prepayment capabilities. In that case, you can turn them on and off whenever there is an emergency or a cash flow issue throughout the term.
Refinancing a Mortgage for Investment
For the many Canadians with large pensions and limited RRSP limitations due to these pensions, it could be a good idea to deposit low-interest mortgage money into a TFSA.
When financed with a low-interest mortgage rate, the TFSA has the potential to be a very powerful and useful tool. For many Canadians, this tax-free investing presents a fantastic opportunity. This is something usually more advanced investors consider so firstly, consult a financial advisor and accountant.
You can presumably deduct your investment in any unregistered (non-TFSA or non-RRSP) investment.
Consider doing so because, as an investor, your mortgage payments will be more consistent and because, at the time of writing, a higher fixed rate will result in a larger tax deduction. A lower variable rate with a greater risk premium will also have higher after-tax costs because there is less income tax to deduct.
THE BOTTOM LINE
Refinancing can be a fantastic way to save money on your mortgage, pay off debt, or get cash out for home improvements or other expenses. However, it's important to understand how refinancing works and the best strategies before you sign on the dotted line. Doing your research and working with trusted alternative lending in Canada can ensure that refinancing is the right move for you and your family.
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 alternative 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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