Mortgage refinancing is an interesting solution that allows you to tap into your accumulated capital and use it to meet a variety of financial needs. We advise you to carefully calculate all the costs of such a financial product in order to be sure to choose the best solution available to you.
What is mortgage refinancing?
Mortgage refinancing is a renegotiation of the mortgage you already have. It is a loan based on the value of your home, which is the difference between the mortgage you still have to pay and the current value of the house.
This financial product allows you to obtain up to 80% of the estimated value of your property. It’s an important source of credit that can be used to finance projects, consolidate your debts or increase your mortgage to carry out work in your home or cover other expenses.
What does it mean to refinance a mortgage?
Why refinance your mortgage?
There are a variety of reasons why people consider mortgage refinancing.
Re-mortgage to buy a second home
Mortgage refinancing can be an ideal capital for the purchase of a second property. However, it is a very important investment, which is why it is necessary to consult a mortgage consultant before embarking on this procedure.
He or she will be able to help you choose the best solution according to :
- Your borrowing capacity
- Mortgage payments to be made
- Associated costs, including reinstatement allowances
- The value of your home
- The value of the new property
Refinance your mortgage to invest
If you think you’ll find an attractive investment opportunity, you can refinance your mortgage to use that capital. Be aware, however, that this is a significant financial risk and you need to be certain of the return on investment. The refinancing fee and the cost of the new loan must be significantly less than the return on investment in order to reap the full benefits of such a financial product.
Contribute to RRSP through mortgage refinancing
Refinancing your mortgage can also be a great way to contribute to your RRSP, especially if you are close to retirement. This loan will allow you to enjoy a comfortable retirement while reducing the taxes on your income. However, this depends entirely on your financial situation, and it is wise to discuss it with your mortgage advisor in order to develop a personalized retirement plan.
Obtain additional retirement income by remortgaging your home
Accessing the equity in your home provides you with cash flow to add to your retirement income. For those 55 years of age or older, a reverse mortgage is an attractive option. It allows you to borrow up to 55% of the value of your property. This loan will only have to be repaid upon the sale of the house, a move or the death of the borrower.
Although the reverse mortgage seems to be the ideal solution for people who are on the verge of retirement, be aware that it has certain limitations. Interest accrues on the outstanding amount, even if you don’t have to make payments on the loan. Also, if you value your home and want it to live on as a family heirloom, this financing solution is not for you.
Use mortgage refinancing to consolidate debt
If you find yourself in a situation of over-indebtedness while paying high interest rates, mortgage refinancing can be an attractive solution. It will allow you to consolidate your debts into one loan, save money through lower interest rates, and extend the repayment period. You will benefit from lower monthly payments, which will lighten your finances.
Does consolidating your debt affect your credit score?
How does refinancing work?
Mortgage refinancing allows you to re-borrow a portion of the value of your home and the payments you have already made. This loan can be up to 80% of the equity in your home. Some of the alternatives available to you when refinancing your mortgage include:
- The mortgage line of credit that allows you to access the credit you are paying off without having to reapply for a loan.
- Consolidating debts into a single mortgage is also an ideal opportunity to review the type of loan you have.
- The evolving clause is a loan of the capital you have paid back, without legal fees.
When to refinance your mortgage?
Generally, mortgage refinancing is a good option when you need to :
- Consolidate debts to get better interest rates and pay off one loan, which allows you to better manage your finances.
- Invest in expensive projects or take advantage of investment opportunities.
- Carry out renovation or repair work in your home.
Take advantage of lower mortgage rates
Many people choose to refinance their mortgage in order to benefit from better interest rates. However, it’s important to remember that mortgage refinancing also requires the payment of various fees, which is why you should do the necessary calculations before committing yourself.
How much does it cost to consolidate debt?
Reduce your monthly payments to ease your financial situation
Refinancing your mortgage allows you to start a new negotiation in order to set up repayment conditions that are more adapted to your financial situation. You will be able to reduce your monthly expenses and even consolidate a large part of your debts into a single payment. This solution offers you better interest rates and the possibility of dealing with a single creditor.
Change the amortization period
In the event of a difficult financial situation, such as the loss of a job or an illness, mortgage refinancing can allow you to reduce your mortgage payments by extending the amortization period. This will give you the time you need to get back on your feet by providing you with greater financial flexibility.
On the other hand, if your financial situation has improved, and you want to pay off your mortgage quickly in order to get rid of your debts, refinancing also allows you to shorten this amortization period. You will be able to take advantage of prepayment options and modify your mortgage contract.
Change mortgage type
As you know, there are different types of mortgages, and you may find that after a few months of repayment, the one you have chosen is not suitable for you. Mortgage refinancing offers you the opportunity to change the type of loan (fixed rate loan, variable rate loan, etc.) to better suit your current needs.
Take back control of your debts
Benefit from the equity of the house
If you are planning to renovate your home, it’s a good idea to refinance your mortgage. This will allow you to obtain the capital needed for the work while keeping one loan to pay back in order to avoid over indebtedness. This way, you benefit from a single monthly payment and the adequate budget to build the house of your dreams. This alternative is also valid if you are thinking of buying a second home or if you need capital to invest in any other high cost project.
How much does it cost to refinance a mortgage?
How long does it take to recover the costs of refinancing?
When refinancing a mortgage, there is no time limit for obtaining the costs. The process can be more or less long, depending on your financial institution. It usually takes a few weeks to a few months. In addition, several factors may come into play, such as the need to assess the value of the property, which may delay the process.
How long does it take to refinance a mortgage?
There is a common misconception that you should wait until the end of the term to renew your mortgage. There is no time limit on refinancing, you can access it at any time, as long as you qualify. However, it is important that refinancing is beneficial to your finances, so talk to your mortgage professional to make the right calculations and know when to refinance.
As you get closer to the end of your mortgage term, the cost of refinancing decreases because you won’t have to pay any penalties or legal fees. Also, the more you pay off, the more you can borrow.
Mortgage refinancing services
If you own a property and need capital to invest in an important project or consolidate your debts, mortgage refinancing may be the ideal solution. This strategy will give you easy access to a significant amount of money to achieve your financial goals.
Our team is here to help you throughout the process to ensure that you make an informed choice and maximize your mortgage refinancing. Indeed, this is an important financial investment that depends on your financial situation and your ability to repay. Our mortgage consultants put their expertise at your disposal in order to develop a personalized solution based on your finances.
We take into consideration your needs, your investment desires and your budget in order to elaborate a plan that will respect your financial situation and allow you to realize your dreams. The team at Refinancement Hypothécaire also offers other services such as alternative loans and debt consolidation.