Homeowners refinance their properties for two main reasons; to get a better interest rate and terms or to gain access to the equity that has grown on the property.
A lower interest rate can have a profound effect on monthly payments, potentially saving you hundreds or thousands of dollars a year. Equity is also important as it measures the growth from what you owe and what the property is worth on the market today. This money is available to use for repayment of debts, to make large purchases or to reinvest in renovations on the property.
Know How Much Your Home is Worth
If you want to refinance your property you will need to know what it is worth today. This involves having your property appraised, but you can start by talking to an accredited mortgage professional. It is their job to know the market. It helps if you can give them with as much information as possible, such as your property tax assessment or information on recent sales of comparable properties in your area. The more information you can accumulate from different sources the more likely it will give you a reliable number to work from without paying the appraisal fee right away.
Finding The Right Loan and Offer
Once your broker has determined an estimate of the value of your home, they can set to work to find lenders with suitable products. The 80 percent loan-to-value ratio is not written in stone. In fact, many lenders will grant mortgages witha much higher LTV ratio and mortgage insurance. Brokers have greater access to mortgage products from a variety of lenders. They can also pre-approve you for a mortgage with a specific lender so that there is little fear of losing any upfront fee when you do
get an appraisal done.
Penalties on payouts of existing mortgages are not necessarily a deterrent either. The money saved by reducing your interest rate over time could be far more. If you hold a variable rate mortgage, then expect to pay a penalty of three months interest. If you hold a fixed rate mortgage, then you will pay the greater of three months interest or interest rate differential penalty (IRD). Your broker can work with you to crunch the numbers so that you can see for yourselves if it is worthwhile.
Know Your Refinancing Options
There are several options available to you when considering a refinance which include breaking your mortgage contract early, taking out a home equity line of credit or blending and extending your mortgage with your current lender. A home equity line of credit gives you access to funds and you are responsible for interest only payments each month on the outstanding balance. If your lender does not offer this service you may be able to get one through another lender. A blended rate uses your current rate plus any extra money you borrow at current market rates. Blended rates are almost always higher than the most competitive mortgage rates on the market, so once again it is recommended that you check with your broker to see if it is worthwhile.
Brokers can clue you into the best deals available to you for your particular situation and look at all the products on the market today. There is absolutely no need to stick with the same lender again unless you choose to do so, but an accredited mortgage professional works for you, not the bank. If you would like a free review of your refinance options, you can contact a Mortgages.ca professional here.