The Two Main Reasons of Refinancing a Mortgage
Obtaining a Canada mortgage is your key into a secure future through an investment in real estate. Perhaps there is no feeling better than becoming the owner of your personal home, and now when the mortgage rates are at a considerably low level, many experts advise first time buyers to think about their first mortgage.
However, it is not only the first time buyers two can take advantage from the current historically low rates. Existing homeowners who have already locked in to a particular mortgage rate may also find the situation ideal for refinancing their mortgage at a lower rate.
Refinancing refers to the process of modifying your current mortgage for a different package. More and more people are turning towards refinancing in the past couple of years, owing to the benefits and attractions it holds. However, is refinancing really worth the risk? And if it is, then what are the main reasons behind it and what are the different options available?
Putting it in a broad perspective, there are actually two reasons of refinancing a Canada mortgage. One is simple and straight forward – you break your current mortgage and sign up for a new one in order to enjoy better mortgage rates. You can save up on a massive mound of interest and also make your monthly payments more affordable and budget friendly.
Another main reason of refinancing the mortgage is when you need to access the equity or net worth of your home and use it for any other cash needs you have – this may be related to your home, for example if you would like to do some renovation, or totally unrelated like paying off debt or going on a vacation. Refinancing your Canada mortgage has both its advantages and disadvantages, and you should know about all the facts in detail before making a final decision.
However, all these perks of a refinance don’t come for free. There are additional costs and expenses associated with a Canada mortgage refinance, and they may turn out to be an additional burden if you do not plan for them in advance. First in line is the penalty that you will have to pay the lender for breaking your existing mortgage in the first place. How much you will have to pay will depend upon the total payments you have made and the total amount of loan that you owe to the lender etc. Contact a mortgage broker for full details in this regard.
The closing costs of halting and then filing for a new mortgage are also another aspect that you will have to think about. These may include the documentation charges, legal fee, title insurance etc. A mortgage refinance means a new mortgage contract, so you will have to make all the required payments for this mortgage from scratch.
When you need to access the home equity, a lot of people prefer the Home Equity Line of Credit as it allows more flexibility. You can access the amount of equity that you need and you will only have to pay the interest on the amount that you owe.
Whatever method of refinancing you use and for whichever purpose, guidance from a specialist or Canada mortgage expert is a must. At the end of the day, it is always a good idea to have some savings intact instead of relying completely on refinancing, as you are at the risk of losing your home if the plan backfires.