If you are looking to refinance your current mortgage you will be doing so for one of three reasons; to consolidate debts, to reduce your interest rate or to get equity out of your home. We will deal with each of these issues separately. The underlying message is to seek out professional advice because your situation is unique and it needs a unique solution!
Debt Consolidation
Refinancing your mortgage to pay off other debts can save you money. If you are perpetually carrying large credit card balances, or have other high interest rate loans, it may make sense to consolidate these debts into your mortgage. Not only will you reduce the interest rates you are paying but you will also improve your monthly cash flow.
You can refinance these debts several ways. You could consolidate all your debts into one big mortgage, just add a small second mortgage or even a secured line of credit. The route you take will depend on your particular situation.
Reducing Your Current Interest Rate
If you are locked into a high rate mortgage you may want to break your current mortgage contract and renegotiate a new mortgage with a lower rate. The first thing that you should realize is that unless your mortgage contract specifically allows for this, your current lender is under no obligation to allow you to renegotiate your mortgage rate. Having said this, most lenders will allow you to prepay your mortgage with the greater of a three month interest penalty or an interest rate differential calculation. You should begin by finding out what your lender will charge you to renegotiate your mortgage rate. Once you determine the penalty, then you can begin to calculate the potential benefits of a lower interest rate.
Equity Take Out
Many Canadians choose to refinance their mortgage to finance a new addition, for an investment opportunity, to help their kids buy a home, to finance a new business etc. Each situation is unique and as such advice on how to structure such a transaction is unique to the individual.
Bottom Line
When it comes to refinancing there can be many ways to structure the same transaction and you need to know all your options before you can make an informed choice.
When you are ready to make an informed choice just let us know.
