What are the reasons to refinance your mortgage?
With interest rates the lowest that they’ve been in years, many Canadians are considering refinancing their mortgages. But what exactly does this mean and what are the reasons for doing so?
What is refinancing?
When you refinance your mortgage, it means that you are breaking your current mortgage in order to get another mortgage. To do this, you will usually have to pay a financial penalty – but for those that use this strategy, the benefits outweigh the costs.
Here are four reasons you might want to refinance your mortgage.
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To get a better interest rate
The savings of even a percentage point on your mortgage interest can result in thousands – sometimes tens of thousands – of dollars saved over the amortization period of your mortgage. If mortgage rates have gone down substantially since your last mortgage contract – or if you have improved your credit and can now qualify for a better rate – it may make sense for you to refinance.
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To consolidate debt
If you have high-interest debt such as credit cards or payday loans, you can dramatically reduce your payments and save on interest by refinancing your mortgage. As long as you have sufficient equity in your home (and most lenders will allow you to borrow up to 80% of your home equity), you can take cash out of your home to pay off your debts when you refinance. The result will be that you will owe more on your mortgage, but those debts will be rolled up into one convenient monthly payment at a much better interest rate.
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To finance a large expense
Another reason to refinance and take equity from your home is to pay for a large expense such as a home renovation or an investment in your business. Some people find that this is a much more appealing option than taking out credit at a high-interest rate.
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To change the type of mortgage that you have
For a variety of reasons, you may wish to change the type of mortgage that you have. You may wish to change from a variable to a fixed-rate mortgage or vice versa. Of you may want to change the amortization period so you can either lower your payments – or raise them in order to pay your mortgage off faster. Refinancing means that you don’t have to wait until your renewal date to make these changes.
If you would like to learn more about mortgage refinancing to determine whether it is the right option for you, contact 1Onefund Financial today.