Refinancing 101

Whenever you borrow money you agree to terms like payment timelines and interest. When you change those terms — usually to lower your costs or extend your borrowing or otherwise change the situation — you are refinancing. Mortgages are loans, so they can be refinanced, too. They often have special rules that govern them or that you have agreed to.

Mortgages have built-in renewal terms. For most mortgages that’s 5 years. At the end of a term, you have three choices:

• Renew with the same Lender – the easiest course of action if you have been consistent with your payments.
• Change your terms and refinance.
• Switch to another Lender – if you are not happy with the current Lender, for whatever reason, you can move to another Lender at maturity.
• Can I refinance my mortgage without renewing?

Yes, You can refinance whenever you like, but there may be penalties built-in to your mortgage. Some mortgages don’t have a refinancing penalty.

You generally need your property to have appreciated in value or have enough equity available to borrow against.<

At renewal, as there is no penalty. The second-best time is to:

1.) Consolidate debt – if you are carrying any sizable amount of consumer debt (eg. credit cards, Lines of Credit, car loans, etc.) which come with much higher applicable interest rates, and much higher minimum monthly payments as compared to a mortgage, the ability to add those outstanding amounts into the home mortgage usually makes a lot of sense.
2.) Move to a lower interest rate – interest rate fluctuations are unpredictable. They can go up and down due to many different economic circumstances. If mortgage rates drop, as compared to when you secured your own mortgage, then it might make sense to refinance to the new, lower interest rate mortgage products available.

3.) Get cash for a investment property. Leveraging the value of your current home is a common way of purchasing another property.

Mortgage Refinancing Benefits:
a.) Interest Rate Savings – this speaks for itself. If a significantly lower rate is available it is usually worth considering.
b.) Cash-flow savings – if you can drop your monthly outlay isn’t that a good thing? Consumer debts usually have a monthly minimum payment of 3%. On $50,000 worth of credit card debt that is a monthly minimum payment of $1500. If moved to a mortgage the savings would normally be over $1000 per month.

Mortgage Refinancing Costs:
1.) Penalty to break your existing mortgage – at this point you will realize what type of mortgage product you are in and if the terms to break-out are reasonable or not?
2.) Appraisal – the lender needs to have a third party determine the fair market value of the home and then calculate how much they are prepared to lend based upon that value.
3.) Legal Fees – this will be an entirely new mortgage that will be required to be registered. The new value and mortgage amount will have changed from the original amounts.