Is now a good time to refinance your mortgage?

When is it the best time to refinance your mortgage? As every home owner has their own set of circumstances and needs, the answer varies from person to person. However, home owners can all ask themselves the same questions to determine if a refinance is right for them. Here are a set of questions that are important for you to consider if you are thinking about refinancing!

What’s new with interest rates?

Interest rates are connected to the pros and cons of a mortgage refinance. The first announcement of 2023 from the Bank of Canada came out on January 25th. Update on Jan.25

What’s new with YOU?

Of course, the biggest factor when you decide whether or not to refinance your mortgage is you! As you work through your mortgage term, it’s natural if your needs change and you discover your current product is not the best choice for you anymore. All aspects of our lives are always changing. So, if your personal needs have evolved and are affecting your mortgage, that’s normal. Some factors you might be experiencing include wanting to pay off your mortgage faster through higher or more frequent payments, or wanting to stretch out your amortization a bit to limit the amount you will owe each month. You might also be searching for a more flexible product, or perhaps a product with more predictability. If your own needs haven’t changed in a way that affects your mortgage, it’s often not worth the process of refinancing. A refinance is for people who are hoping to make a specific change that will improve their experience as a home owner.

Do you have any future plans?

Even if your current needs haven’t changed at all, you might be planning a big expense for the future and you could use a little extra cash flow. Home renovations are a big cost many home owners take on in their lifetime, and they usually require some extra financial support. If you have built up enough equity in your home, you can use that to support your renovation projects. Similarly, you might be thinking about paying for a child’s post-secondary education, or taking on another major expense. Often, a refinance can provide a big boost in these situations. You can think ahead and try to anticipate what your needs will be in the next few years, and whether you have enough equity built up to use a refinance to your advantage.

Will you encounter penalties?

Before you make the decision to refinance your mortgage, you should consider the potential penalties. When you refinance, you are breaking your current mortgage terms and exiting your contract early. When you do this, you will have to pay a fee, but the severity will depend on your mortgage type. If you are in a fixed-rate product, the penalty to exit is usually higher than with a variable-rate mortgage. A variable-rate product requires a payment of three months’ interest to break your contract, while a fixed rate usually uses something called an interest rate differential (IRD). IRDs are a bit more complex, but they often end up being higher than three months’ interest. You have to consider whether the benefits of refinancing will be worth the cost of doing it. 

Keep in mind, however, that if you are planning on moving within the next year or two, now is likely not the time to refinance your mortgage. When you go through the refinancing process, and pay the penalty to break your current term, you want to enjoy the benefits over time. If you move, you will just be breaking your terms once again, and refinancing will have cost you a lot of time and money.

Are you in debt?

Finally, another big reason people choose to refinance is so they can consolidate debt. For home owners dealing with debt, it can feel overwhelming and stressful. However, home owners who have built up enough home equity may be able to use that equity to take care of some of their debt. Debt consolidation will combine all your debts into one lump sum payment, all with one interest rate. This helps keep you on track with payments, and it often allows you to work with a lower interest rate. Debt consolidation is a longer-term solution, and you should speak to a broker before making any decisions.

If you are interested in refinancing your mortgage, you deserve to have a broker on your side who will guide you through the process. We limit the stress of a refinance, and help you secure the best product for your needs.

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.