Reasons to Refinance

reasons to refinance

Lower Interest Rates

While there are penalties in place for breaking a mortgage contract, however if the interest rate is lower, this can save you money over time. Of course you must also look at the penalty and the size of the outstanding mortgage.

Consolidate Debt

If you have enough equity in your home, you will be able to pay out high-interest debt through a refinance. An example of this is if you have a number of outstanding debt (car loans, line of credit, credit cards) you may be able to consolidate all of the debt through a variety of refinance options.

Access equity in your home

By accessing equity in your home, you can access up to 80% of your home’s value minus any outstanding mortgages. There are several ways to access this equity, we will examine the three main ways below.

Methods to refinance

Blend and extend your existing mortgage

There is a chance that your existing mortgage lender may offer you a “blended rate”; this is essentially a blend of your current mortgage rate plus any money you borrow at current market rates. These rates are normally higher than most competitive mortgage rates, so make sure to compare the blended rate against the savings.

Add a home equity line of credit

This home equity line of credit gives you access to the equity in your home at your own discretion. You are responsible for interest only payments each month on the outstanding balance. This can be done through your existing lender or a small subset of other lenders.

Break your existing mortgage contract

Breaking your mortgage contract is something you might consider, if you want to take advantage of lower interest rates or access equity from your home. This will eliminate your existing mortgage contract and allow you to take on a new mortgage with a new lender.

Cost of Refinancing

The cost of refinancing your mortgage all depends on which strategy you use. No matter what strategy you choose, you will always incur legal fees, as a lawyer must change the financing on the title.

If you are breaking the mortgage in the middle of the term, your lender will charge a prepayment penalty. For variable mortgage rates this is simply three months interest. For fixed mortgage rates this penalty is the greater of three months interest or the interest rate differential payment (IRD).

5 Tips for First Time Home Buyers

First Time Home Buyers

Looking for a home can be exciting and stressful, especially if the home you are looking for is your first home. If you are ready for your journey into buying your first home, here are five helpful tips for first time home buyers:

1 How Much Can You Afford

Knowing how much you can afford will help determine the amount to put towards a down payment and payments towards your mortgage. Banks and other lenders have formulas and calculators available to see how you can afford to borrow, so it is worth it to have a look at a couple of the formulas to get an estimate as to the amounts you will be paying. Make sure to always factor in other expenses! Just because you get approved for a mortgage, doesn’t necessarily mean you can afford it. Even though it is your first home, don’t get carried away, you can always move up later in life.

2 Wish List

Before you actually start shopping around for a home, create a wishlist of your needs and wants, as well as things you could compromise on. This will help with narrowing down your criteria on your first home and finding a home that fits your needs.

3 20% Down Payment

Aim to put at least a 20% down payment on the home. It is highly recommended, especially for first time home buyers that you put 20% down so that you qualify for a conventional mortgage. If you have money in your RRSPs, you can use up to $25,000 towards the purchase of a new home.

4 Cost of Closing

The closing costs of your home can range from 1.5 to 3.5% of the total cost of the home. Depending on the location of the house, you might have to hire a moving company to move your stuff. Be sure to create a moving budget and try to estimate the cost of moving. Other costs that you might have to pay include:

• Home inspection fee

• Legal fees

• Property transfer tax

Appraisal fee

• Land transfer tax

• Title insurance

• Interest adjustment

• Property and fire insurance

5 Understand the Different Payment Options

Understand that there are different payment options available for paying off the mortgage. Paying off your mortgage sooner rather than later will save you thousands in interest costs. Make sure you understand the different payment options and understand the terms of payments.