What does it mean to refinance your mortgage?
Refinancing your mortgage could be a smart financial move that helps you save money and reduce your monthly payments. But if you’re feeling a bit lost in the process, you’re not alone.
Refinancing can be complicated and confusing, especially if you’re not familiar with the ins and outs of the mortgage industry. Whether you’re a seasoned homeowner or just starting out, here’s what you need to know about refinancing in Canada.
”Be sure to calculate ahead of time and see if it fiscally makes sense.
Crown Mortgage Corp.
Refinancing a mortgage in Canada essentially means renegotiating your current mortgage with a new one, usually with better terms and conditions. But, when you refinance your mortgage, you can also tap into your home’s equity and borrow money if you need to pay off or consolidate other debts, renovate your home, or simply reduce your monthly payments.
However, you’ll need to go through a new approval process with your lender–including the mortgage stress test–and they’ll likely want to see your credit score and employment information to ensure you can handle the new mortgage terms.
Keep in mind that refinancing your mortgage may come with fees and penalties–especially if you refinance before the end of your mortgage term–so it’s important to calculate ahead of time and see if it fiscally makes sense.
When should you refinance your mortgage?
Refinancing your mortgage can be a smart move if it makes sense for your financial situation. But how do you know when it’s the right time to refinance? There are several factors to consider:
When interest rates are low
If interest rates have fallen since you took out your original mortgage, refinancing could help you take advantage of lower monthly mortgage payments and save money over the life of the loan.
When your home has increased in value
If your home has increased in value, refinancing could help you access the equity in your home tax-free and use it for home improvements, debt consolidation, to pay for your child’s tuition, to buy a car, or other expenses.
When your credit score has improved
If your credit score has improved since you got your original mortgage, refinancing might be worth considering. This is because a better credit score can help you qualify for a lower interest rate on your mortgage. In Canada, the credit score you need to get a mortgage can vary depending on the lender, but generally, a score of 680 or higher is considered good. With a good credit score, you might be able to get a better interest rate on your mortgage, which could mean lower monthly payments and potentially saving thousands of dollars over the life of the loan.
When you want to lower your monthly mortgage payments
If you’re hoping to reduce your monthly budget, refinancing to a longer amortization could be a good option. This will help reduce your monthly mortgage payments, which is great if you’re looking to get a hold of your finances month-to-month.
When you want to pay your mortgage off faster
On the flip side, if you’re hoping to pay off your mortgage faster, you could also opt to extend your amortization period to do just that. Doing this can also help you save on the interest payments you’ll be making, in the long run.
