Interest rates have been low for quite a while now. As a result, many homeowners are considering mortgage refinancing to take advantage of this situation. Canadians usually refinance their mortgages to pull out some equity to pay off other debts, credit card bills, loans or home renovation projects.
A mortgage refinance can be done at any point during the mortgage term, but it will require you to pay an interest penalty to your current lender. But overall it’s a good deal because refinancing to pay off other debts will lead to higher cash flows every month.
Currently, Canadians can take out up to 80 per cent of the value of their new home when refinancing insurance mortgage backed by the government. This rule was put in to place on July 9th, 2012.
Why is it good to refinance?
Because it is a good way to save money!
A home owner can save money by refinancing a mortgage in two ways. Primarily, if their next mortgage is at a lower interest rate, a lot of money can be saved. And this very much a possibility these days because the local interest rates are at an all -time low. Therefore, if your mortgage is at a higher rate than the ones prevalent these days, refinancing would be a very beneficial step to take.
Secondly, your new mortgage should offer certain freedoms that may not have been on your previous program. This flexibility will come in handy when it is time to avoid penalties and costly interest payments.
Are there any drawbacks to mortgage refinancing?
Yes, penalties!
Chances are that your lender will apply a penalty on your account for refinancing before the end of the term. So find out the amount of this penalty beforehand, it may be high enough to discourage you from refinancing altogether. Your mortgage agreement can easily indicate the type and amount of penalty in case of a refinanced mortgage.
When is a good time to refinance?
Right now seems good!
For home owners, any time with low interest rates is a great time to consider refinancing as a viable option.
You should also consider refinancing if it can enable you to enjoy substantial savings apart from the lower interest rates. For example, your new mortgage may allow you to make lump sum payments without a penalty, change the amortization period etc. without paying any fines.
It is also good to refinance if your other debts can be consolidated into one big mortgage payment every month, saving you a substantial amount of money.