Refinancing a mortgage in Ontario can be beneficial
to homeowners in a number of ways. Whether it is to reduce your monthly
payments, access equity for investments, or take advantage of newer, lower
interest rates, refinancing comes with some pros and cons to take into
consideration. In addition, with all the options offered today by banks and
private lenders, consumers should be aware of the basics of refinancing first.
Refinancing is essentially getting a new mortgage to
replace your original one. Most homeowners consider refinancing to attain a
more favourable interest rate or term for their mortgage.
When Should I
Borrowers may refinance their mortgage for a number
of reasons, but the three primary motivators are to lower interest rates,
reduce or lengthen their loan’s terms, or access trapped equity for investment
1. Lower Interest Rates
As you work your way up the career ladder and
establish a strong credit rating, your ability to acquire loans at favourable
interest rates increases. With a lower rate, homeowners will be able to spend
more time paying off their principal loan rather than throwing money away at
interest. Depending on the difference, you could save a considerable amount
over your mortgage with just a simple adjustment to your interest rate.
2. Reduce or Lengthen Your Mortgage
Depending on your situation, refinancing can allow
you to reduce or lengthen the term of your mortgage. If you are looking to
lower your monthly payment to diminish the stress on your day-to-day budget,
increasing the length of your mortgage term is a viable option. However, if you
find yourself with increased income and looking to pay off your mortgage
sooner, decreasing your term will allow you to pay off your mortgage sooner
3. Cashing Out on Home’s Equity
As your home appreciates on the market, its value
will increase over time. Many homeowners put additional funds into adding
upgrades and improving their homes for future resale value. Refinancing your
mortgage can allow you to access equity that is tied up in your home for major
investments, such as a vacation property, home renovations, a child’s tuition,
or paying off other debts such as credit cards.
Whenever you are dealing with real estate, timing
can be everything. If you acquired your mortgage during a period of high
interest rates and the market has settled down since, it may be a wise to look
into current rates to see if there has been considerable change.
What Is the
Cost of Refinancing a Mortgage?
Refinancing your mortgage isn’t quite as simple as
it seems. You will need to cover costs such as an application fee, appraisals, legal
fees and other closing costs similar to your original mortgage. There may also
be penalties that come with obtaining a lower interest rate or altering your
mortgage’s terms. It’s important to consider these costs before choosing to
refinance a mortgage.
It is best to arrange a meeting with a financial
advisor or mortgage specialist to determine if refinancing your mortgage in
Ontario is the best route for your situation and needs.