Mortgage Refinancing In Mississauga and Toronto
WHAT IS REFINANCING A MORTGAGE?
A mortgage refinance involves taking a new mortgage to replace your current one. You can apply for the same amount as your existing mortgage or a higher amount. You can refinance your mortgage to combine a first and second mortgage at a more favourable interest rate. Just like the first mortgage, your home serves as the collateral for a mortgage refinance. You should consult an experienced mortgage broker to increase your chances of having your mortgage refinance approved at lower rates.
Mortgage refinancing is possible on both residential and commercial properties. You only need an experienced broker to guide you through the process. A refinance could help you obtain a mortgage at a lower rate, favourable terms and conditions, and longer amortization. You can use the money from the refinance for several reasons. You can save the money or use it for expenses like home improvements, education expenses, divorce fees, and others.
Mortgage brokers have an extensive network of both conventional and alternative mortgage lenders. You may opt for alternative lenders if you have a bad or lower credit score, inadequate income, have numerous revolving debts on credit and debit cards, or are self-employed. People in self-employment have challenges securing a mortgage from conventional lenders because they have a non-traditional way of reporting their income.
A mortgage refinance gives you an opportunity to alter the terms of your existing mortgage agreement. You could even switch lenders and choose a lender that best suits your needs and financial situation. You can refinance to secure a better interest rate, especially if your credit score has improved since you took your last mortgage. If you are in a tough financial situation, a mortgage refinance will allow you to access extra money without having to apply for a second mortgage or a private mortgage.
HOW DOES MORTGAGE REFINANCING WORK?
How does home refinancing in Ontario work? For every homeowner, a time may come when they need to refinance their mortgage. A refinance allows you to pay in full the outstanding amount of your prior mortgage by securing a new mortgage. The new mortgage often comes with a different interest rate and different terms and conditions. Mortgage refinancing allows borrowers to borrow as much as 80% of the equity of their homes. The refinanced mortgage interest rates are usually lower than the rates of other personal loans.
While refinancing a mortgage in Ontario, you should follow the following steps:
- Determine whether you have a good reason to refinance your mortgage
- Evaluate if mortgage refinancing is your best option to obtain the funds you need
- Determine if you can meet the monthly repayments of the refinanced mortgage
- Understand your credit score
- Shop around and explore mortgage refinancing offers from different lenders
- Determine the total cost of mortgage refinancing
- Submit your loan application
- Review the mortgage agreement upon approval
ADVANTAGES AND DISADVANTAGES OF REFINANCING YOUR MORTGAGE
Refinancing a mortgage has its pros and cons. The following are the leading advantages of refinancing
- Allows you to enjoy lower interest rates Refinancing your mortgage can lead to significant savings; it allows you to take advantage of lower interest rates. How much you can save will vary depending on factors like the applicable prepayment penalty fee. The prepayment penalty fee will depend on whether you have a variable rate mortgage or a fixed-rate mortgage, as well as your agreement with the lender. The experienced mortgage brokers at Your Mortgage Lady can help you identify the best refinancing options to enable you to save thousands of dollars over time.
- Debt Consolidation You can use the extra funds borrowed against the equity of your home to consolidate other debts. With these funds, you can clear high-interest business and personal loans, including credit card debts. You can also pay off a student education loan, car loan, and overdue tax payments, among others. Our mortgage brokers can help you understand how you would benefit from refinancing to consolidate your debts.
- Borrow cash against the equity of your home or commercial property If you borrow from a conventional lender, you can access up to 80% of the equity of your home. If you go for private or alternative lenders, you can access 85% or even 90% of the equity of your home. You can use these extra funds for any purpose you like including investments, travel, luxury purchases, debt consolidation, etc.
- Improve your credit score You can rebuild your credit score by using the funds from a refinance to pay off higher interest loans like credit card debts, personal tax bills, past-due property bills, and rewards credit cards. With an improved credit score, you will enjoy significant savings when you apply for another mortgage in the future. Even small loans could adversely affect your credit score if they are overdue. Usually, the credit score depends on a borrower’s loan to credit limit ratios; reducing this ratio improves your credit score. Below are the potential drawbacks of refinancing your mortgage
- Penalties for breaking the mortgage early A refinance allows you to change the terms of your current mortgage or even choose a different lender. You can apply for refinancing at any time; you do not have to repay the other mortgage. However, when you refinance before the end of the mortgage term, you have to incur a prepayment fee. An experienced mortgage broker will help you determine if a refinance is the best option for you and the fees associated with it.
- Mortgage refinancing fees You will incur several costs when you refinance your mortgage. The charges will vary depending on whether you refinance through your current lender, another lender, a conventional lender, or a private lender. The costs that you should factor in include legal fees, title search, appraisal fees, title insurance, and broker fees. Our mortgage broker will disclose all the charges to you so that you are aware of the total closing fees. You could save on the brokerage fees if you refinance through a conventional bank. Some conventional banks in Canada pay brokers for their services. However, it is more daunting to qualify for a refinance from a conventional bank, and the application process is more involving.
Mortgage Refinancing For Your House
When you refinance the mortgage on your 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
Rates
One of the best reasons to refinance your mortgage is to lower the interest rate. Typically known as rate-and-term refinancing, lowering the interest rate is the most common reason why borrowers refinance. If you pay a higher interest rate on your current mortgage, you could benefit from a refinance, especially if you shorten the mortgage term. A rate-and-term mortgage refinance could result in huge savings for a homeowner.
The rule of thumb is that you should refinance your mortgage if you can reduce your interest rate by at least 2%. However, many lenders agree that even an interest reduction of 1% is a good incentive for a refinance. Reducing the interest rate saves you not only money but also increases the rate at which you grow the equity in your home.
Lowering your monthly mortgage repayments will have a positive impact on your budget. You can lower your monthly payments by refinancing to a lower interest rate or extending the loan term. With a lower repayment amount, you will pay your mortgage and still have money to pay other debts and expenses. If you are concerned about your ability to meet your current mortgage repayment in the future, refinancing to lower the installment will relieve this pressure.
Even if refinancing could help lower your monthly repayments, you are responsible for the closing costs. Also, if you refinance into another mortgage or an equal or longer-term, you will probably pay more interest over the life of the loan. Therefore, even if your monthly repayments decrease, the costs might increase over the long term. It is important to consult a mortgage broker before making a mortgage refinancing decision.
Repayment
Mortgage Provider
You could refinance your mortgage with a new lender, even if you have been working with your current lender for years. When refinancing a mortgage in Ontario, it does not necessarily pay to remain with your existing lender. Different mortgage lenders have different rates for mortgages and different borrowing requirements. A lender you’ve never worked with could give you a lower interest rate than your current lender. Of course, you will go for the lender with the lower lending rate and the lower monthly payments that come with it.
By choosing a different mortgage lender, you might end up with lower closing costs. Closing fees are not universal; every lender charges their own fees, some of which are non-negotiable. Perhaps your current mortgage lender is not responsive or does not handle your inquiries appropriately. You may prefer switching to a mortgage lender who is easy to work with. The new lender might offer better customer service, a shorter waiting period, and responsive brokers. It always helps to shop around for several offers from different lenders before making the ultimate decision.
Major home improvement projects are often costly. If, for example, you are renovating your home, a bank loan or loans against your credit cards have high-interest rates. A mortgage-refinancing loan is more affordable and can cover the cost of labour and the materials needed for home improvement. Refinancing offers much lower interest rates, making it a viable option for many homeowners.
You should ensure that you plan adequately before starting home improvements. It is advisable to apply for a refinance at least one month before when you plan to start the renovations. Applying for a refinance gives you ample time to act in case traditional lenders turn you down. Refinancing allows you to access a lot of money at once, meaning that you can afford expensive renovations without straining your monthly budget.
Improve Your Home
Amortization Period
The amortization period refers to how long it will take for you to pay off your existing mortgage. Your financial situation might have changed since getting the first mortgage making it reasonable to refinance your mortgage with a shorter or longer amortization period. If your finances have improved, it would be wise to refinance your mortgage with a shorter amortization period. By increasing the mortgage payments, you could lower the amortization period by five or more years and save a significant amount in interest payments.
On the other hand, your family budget might have stretched thin, and perhaps you want to free up some capital. You could refinance your mortgage with a longer amortization period. Even if it takes longer to pay the mortgage and leads to a higher interest, you will free up a significant amount every month.
You could refinance your mortgage to convert from an adjustable-rate mortgage, commonly abbreviated as ARM, to a fixed-rate mortgage. Usually, adjustable-rate mortgages start out with lower interest rates than fixed-rate mortgages. However, due to periodic adjustments, ARMs could result to rate increases making them costlier than fixed-rate mortgages. Mortgage refinancing allows you to convert to a fixed-rate mortgage resulting in lower interest rates. You will also eliminate the concern over future hikes in interest rates.
If interest rates are falling, converting from a fixed-rate mortgage to an adjustable-rate mortgage could be a sound financial decision. This move is mainly beneficial to homeowners who do not plan to remain in their homes for many years. These homeowners can opt for ARMs to reduce the interest rates since they don’t have to worry about how rates will hike 30 years in the future.
Switch Rates Types
Consolidate Mortgages
It’s common for borrowers to have two mortgages. If you build enough equity in your home, you can take out a second mortgage. You could use the money to pay school fees, finance a business, pay off a debt, or make a large purchase. Other borrowers use second mortgages to enhance the value of their homes through remodelling or making additional constructions. If you have more than one mortgage, mortgage refinancing could help you combine the mortgages.
You should not make the decision to consolidate your mortgages based solely on the reduction of the monthly repayment. You should consider how long you would stay in the house. You should also compare the cost of your current mortgage with the costs associated with the new mortgage. If the overall costs will be lower after consolidation, then refinancing is a good idea.
REASONS TO REFINANCE YOUR MORTGAGE
There are many reasons to refinance your mortgage, but all have the same goal: to save money. Refinancing could have both short-term and long-term effects on your finances. Below are some common reasons for refinancing your mortgage:
Rates
One of the best reasons to refinance your mortgage is to lower the interest rate. Typically known as rate-and-term refinancing, lowering the interest rate is the most common reason why borrowers refinance. If you pay a higher interest rate on your current mortgage, you could benefit from a refinance, especially if you shorten the mortgage term. A rate-and-term mortgage refinance could result in huge savings for a homeowner.
The rule of thumb is that you should refinance your mortgage if you can reduce your interest rate by at least 2%. However, many lenders agree that even an interest reduction of 1% is a good incentive for a refinance. Reducing the interest rate saves you not only money but also increases the rate at which you grow the equity in your home.
Repayment
Lowering your monthly mortgage repayments will have a positive impact on your budget. You can lower your monthly payments by refinancing to a lower interest rate or extending the loan term. With a lower repayment amount, you will pay your mortgage and still have money to pay other debts and expenses. If you are concerned about your ability to meet your current mortgage repayment in the future, refinancing to lower the installment will relieve this pressure.
Even if refinancing could help lower your monthly repayments, you are responsible for the closing costs. Also, if you refinance into another mortgage or an equal or longer-term, you will probably pay more interest over the life of the loan. Therefore, even if your monthly repayments decrease, the costs might increase over the long term. It is important to consult a mortgage broker before making a mortgage refinancing decision.
Mortgage Provider
You could refinance your mortgage with a new lender, even if you have been working with your current lender for years. When refinancing a mortgage in Ontario, it does not necessarily pay to remain with your existing lender. Different mortgage lenders have different rates for mortgages and different borrowing requirements. A lender you’ve never worked with could give you a lower interest rate than your current lender. Of course, you will go for the lender with the lower lending rate and the lower monthly payments that come with it.
By choosing a different mortgage lender, you might end up with lower closing costs. Closing fees are not universal; every lender charges their own fees, some of which are non-negotiable. Perhaps your current mortgage lender is not responsive or does not handle your inquiries appropriately. You may prefer switching to a mortgage lender who is easy to work with. The new lender might offer better customer service, a shorter waiting period, and responsive brokers. It always helps to shop around for several offers from different lenders before making the ultimate decision.
Improve Your Home
Major home improvement projects are often costly. If, for example, you are renovating your home, a bank loan or loans against your credit cards have high-interest rates. A mortgage-refinancing loan is more affordable and can cover the cost of labour and the materials needed for home improvement. Refinancing offers much lower interest rates, making it a viable option for many homeowners.
You should ensure that you plan adequately before starting home improvements. It is advisable to apply for a refinance at least one month before when you plan to start the renovations. Applying for a refinance gives you ample time to act in case traditional lenders turn you down. Refinancing allows you to access a lot of money at once, meaning that you can afford expensive renovations without straining your monthly budget.
Amortization Period
The amortization period refers to how long it will take for you to pay off your existing mortgage. Your financial situation might have changed since getting the first mortgage making it reasonable to refinance your mortgage with a shorter or longer amortization period. If your finances have improved, it would be wise to refinance your mortgage with a shorter amortization period. By increasing the mortgage payments, you could lower the amortization period by five or more years and save a significant amount in interest payments.
On the other hand, your family budget might have stretched thin, and perhaps you want to free up some capital. You could refinance your mortgage with a longer amortization period. Even if it takes longer to pay the mortgage and leads to a higher interest, you will free up a significant amount every month.
Switch Rates Type
You could refinance your mortgage to convert from an adjustable-rate mortgage, commonly abbreviated as ARM, to a fixed-rate mortgage. Usually, adjustable-rate mortgages start out with lower interest rates than fixed-rate mortgages. However, due to periodic adjustments, ARMs could result to rate increases making them costlier than fixed-rate mortgages. Mortgage refinancing allows you to convert to a fixed-rate mortgage resulting in lower interest rates. You will also eliminate the concern over future hikes in interest rates.
If interest rates are falling, converting from a fixed-rate mortgage to an adjustable-rate mortgage could be a sound financial decision. This move is mainly beneficial to homeowners who do not plan to remain in their homes for many years. These homeowners can opt for ARMs to reduce the interest rates since they don’t have to worry about how rates will hike 30 years in the future.
Consolidate Mortgages
It’s common for borrowers to have two mortgages. If you build enough equity in your home, you can take out a second mortgage. You could use the money to pay school fees, finance a business, pay off a debt, or make a large purchase. Other borrowers use second mortgages to enhance the value of their homes through remodelling or making additional constructions. If you have more than one mortgage, mortgage refinancing could help you combine the mortgages.
You should not make the decision to consolidate your mortgages based solely on the reduction of the monthly repayment. You should consider how long you would stay in the house. You should also compare the cost of your current mortgage with the costs associated with the new mortgage. If the overall costs will be lower after consolidation, then refinancing is a good idea.
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:
- Appraisal fees
- Title search
- Title insurance
- Legal fees
HOME EQUITY LINE OF CREDIT VS REFINANCING MORTGAGE
There are several reasons why most people choose a mortgage to refinance over a home equity line of credit (HELOC). A mortgage refinance gives you the fastest access to money that you have invested in your property. With a mortgage refinance, you obtain a new mortgage, pay off the current mortgage, and sign a new contract. A refinance is simple and straightforward — you can access money fast. You can then use this money to improve your home or for other uses.
However, in terms of percentage points and fees, a mortgage refinance is more expensive than a home equity loan. You must have a high credit score to qualify for a cash-out mortgage refinance since the underwriting standards for a cash-out refinance are higher.
If you have a low credit score, a home equity loan would be easier to obtain than a cash-out refinance. Home equity loans are more affordable than a cash-out mortgage refinance, and they are less complex.
However, a home equity line of credit has several drawbacks. With this form of refinancing, a borrower takes out a second mortgage. Therefore, you will have two liens on your property. This means that you will have two creditors who could claim your home in case of default. It is not advisable to take out an equity loan alongside your mortgage unless you can comfortably meet the mortgage payments every month.
MAKING USE OF THE EQUITY IN YOUR HOME
How do you calculate the equity in your home?
To get the equity in your home, you subtract the amount owed on the property from the property's market value. When determining the amount owed, you should consider all the mortgages and liens secured by your property.
How much equity in your home can you access through a refinance?
When you refinance your mortgage, you can access up to 80% of the equity in your home.
How can you increase your property value?
Your home increases in value over time; you can increase your property value by making home improvements and renovations. The higher the value of your home, the more the equity against which you can borrow.
How are mortgage repayments apportioned?
When you repay your mortgage, a portion of the payment goes to the principal, while the rest reduces the interest.
Why refinance your mortgage?
When you borrow against the equity in your home, you can use the money for extensions and renovations of the home. You could also use the money to consolidate your debts and pay off the unsecured debts with higher interest rates. You could refinance to obtain emergency funding. A mortgage refinance is more affordable than a personal loan. Mortgage refinance is also a common way of financing investment property or education.
What should you know when refinancing for investment?
If you intend to use the funds from a mortgage refinance for investment, the interest on the repayments might be tax-deductible.
Making use of the equity in your home
How does home refinancing in Ontario work? For every homeowner, a time may come when they need to refinance their mortgage. A refinance allows you to pay in full the outstanding amount of your prior mortgage by securing a new mortgage. The new mortgage often comes with a different interest rate and different terms and conditions. Mortgage refinancing allows borrowers to borrow as much as 80% of the equity of their homes. The refinanced mortgage interest rates are usually lower than the rates of other personal loans.
While refinancing a mortgage in Ontario, you should follow the following steps:
- Determine whether you have a good reason to refinance your mortgage
- Evaluate if mortgage refinancing is your best option to obtain the funds you need
- Determine if you can meet the monthly repayments of the refinanced mortgage
- Understand your credit score
- Shop around and explore mortgage refinancing offers from different lenders
- Determine the total cost of mortgage refinancing
- Submit your loan application
- Review the mortgage agreement upon approval
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.
GET ADVICE
Certified Mortgage Brokers 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.