Refinance the Mortgage on Your Barrie Residence
When you refinance the mortgage on your Barrie residence, you replace your current mortgage with a new one containing different terms and conditions.
On closing a new mortgage, your lender of choice pays the outstanding funds and any other incurred costs to your current lender, ending that contract. Your new mortgage agreement takes over.
To refinance your mortgage, you will need a loan to value ratio of less than 80%. To calculate this value the lender will divide the amount that you owe on your mortgage and any other amounts secured by your property into the value of the property.
Reasons to refinance your mortgage
There are many reasons why people choose to refinance their mortgages.
Saving money through better interest rates
Dropping interest rates can save the home-owner thousands of dollars which is why many lenders take the route of refinancing their mortgages at this time.
A relatively small drop in the interest rate can make an enormous difference to the amount that you may pay over the term of your mortgage. This is why so many lenders are prepared to pay the penalties and move on.
It is also possible to negotiate reduced rates if your credit rating has improved since you signed your original mortgage. Your home equity may also have improved considerably reducing the risk to the lender.
The costs of refinancing your mortgage
There are costs to refinancing the mortgage and they must be understood before you take the plunge. If you have a closed mortgage you will incur penalties for terminating the original mortgage. These can be quite steep.
On a variable rate mortgage, you’ll pay three months’ interest. On fixed term mortgages the penalties are typically calculated as the greater of three months interest or the interest rate differential. These costs can run into thousands as they are calculated at the posted rate at the time that you negotiated your contract and not on the actual rate you pay.
Before you conclude the new mortgage, you must be certain that the savings that you will make will adequately cover the penalties and any other costs that you may incur in raising the new mortgage. These will include legal and administrative costs attached to refinancing your home and these closing costs must be understood before the decision is made.
The costs to refinance
The costs will include the following:
Making use of the equity in your home
The equity in your home represents the portion of your home that you own.
The equity is calculated by subtracting the amount of money owed on the property from the market value of the home. The amount owed will include all mortgages and liens secured by the property. You can access up to 80% of the equity of your home when you refinance.
For many homeowners, home equity can have significant value and often represents their single greatest asset. Many homes increase in value over time along with other properties in the area. If you have made home improvements this could have further increased the property value.
In addition, as you make repayments on your mortgage, a portion of the payment goes against the principal, reducing the amount that you owe.
Many people use the equity in their homes to access funds for renovations or extensions to their homes. Still, others find this a convenient way to consolidate debts, paying off the more expensive unsecured loans. If emergency funding is required it is cheaper than accessing a personal loan. Home equity is a popular way to finance education or investment property.
If you are considering an investment option using the funds from a refinanced mortgage, remember that the interest on the repayments may be tax deductible.
A secured loan can save money
Interest on a secured loan is much lower than on an unsecured loan.
If you need a relatively large amount of money for an emergency or to consolidate more expensive unsecured debts, refinancing your mortgage could save you thousands in interest.
Ways to refinance your mortgage
- Break and replace with a mortgage with better terms and conditions
- Add a home equity line of credit HELOC that will allow you to access the equity in your home as and when you need it. A HELOC is an interest only loan so you don’t have to repay the principal. You pay interest only on the amount of money that you have used of the HELOC. You can obtain HELOC for up to 65% of the equity of your home. This is a popular route since it saves on the penalties.
- Blend and extend your current mortgage. This is done by combining the interest rate from the current mortgage with those of the new mortgage. In this way, you can access the equity in your home without paying penalties. You may, however not get the best interest rates available.
Certified Mortgage Brokers Barrie can offer you some of the most competitive rates in the industry.
We can calculate the costs and the savings and give you advice based on these numbers.