When should you consider a mortgage refinance?

Are you thinking about a mortgage refinance? At some point, many Canadian home owners consider refinancing their mortgage. This can be due to changing needs, market conditions, and financial goals. Before taking the leap, however, it’s important to understand whether this is a good option for you, and what the process looks like. Here’s what you need to know!

What’s the point of a mortgage refinance?

First off, let’s clarify the purpose of a mortgage refinance. This will help you decide if it is a path you should pursue, or something that doesn’t fit your current situation. The point of a refinance is to change your mortgage terms in some way that improves your satisfaction with your mortgage product. People often think about securing a lower interest rate, but that’s not the only way a refinance can help you out! It can also help you land prepayment privileges, switch between fixed and variable rates, unlock home equity, and gain financial stability. Basically, a refinance is designed to readjust your mortgage in a way that better serves your needs.

What are the big reasons to refinance?

Let’s go into a bit more detail on the big reasons people choose to refinance. Home owners may want to refinance so they can switch their mortgage type between a fixed and variable-rate product. During times of interest rate rises, locking into a fixed rate can be beneficial and help owners avoid paying rates at their peak. Conversely, when interest rates start falling, it can be smart to look into a variable-rate product. This means your payments will vary depending on current rates, so lower rates equal lower payments. 

Another reason to refinance is to adjust the amortization period of your mortgage. Your amortization schedule represents the life of your mortgage, and how long it will take to pay off. When rates are high, economic conditions are unfavourable, and finances are tight, lengthening your amortization period may be a good move. This allows you to make smaller monthly payments, offering financial relief and stretching out the life of your mortgage. This does increase the amount of interest you will pay in the long run, but it can be a good short-term solution. On the other hand, some home owners want to shorten their amortization period so they can pay off their mortgage more quickly. This means larger payments, but a shorter mortgage lifespan.

Finally, a mortgage refinance is a great way to unlock home equity. Depending on how long you have owned your home, how much of it you have paid off, and whether it has appreciated in value, you may have built a significant amount of equity in your property. Refinancing to access this equity allows you to fund major life expenses, such as home renovations, starting a family, consolidating debt, or running a business. 

Understanding the potential downsides

While refinancing can be an appealing option, there are a couple of downsides to watch out for. The biggest one is the potential cost. In order to refinance, you must break your current mortgage term. Breaking a term before renewal time can be expensive, as lenders have penalties in place to protect themselves from financial loss. The size of this penalty depends on your lender, your mortgage terms, and your specific product, but it can be significant. It’s important to make sure the benefits and savings outweigh the costs before moving forward with the process.

The other factor to consider is the time and effort required to refinance. Since this is a fairly big process, you must be ready to commit to the work that goes with it. While your mortgage broker will be by your side to help you navigate the process, the energy on your end will still be substantial.

The role of your mortgage broker

Anybody looking to refinance their mortgage should be sure to work closely with a mortgage broker. Brokers are experienced in dealing with all kinds of market conditions, and they can examine current trends to see if a refinance would be a good fit for you. They can also evaluate your existing product to determine how much you might be able to save through a refinance. This will help you decide if the process is worth it. If you and your broker decide a refinance is a good option, they can help you navigate the process itself!

There are lots of situations where you might want to consider a mortgage refinance, and many home owners choose to refinance throughout their lives. However, before diving in, it’s essential to understand the current market, your own mortgage product, and the pros and cons of refinancing. Your local broker can guide you through everything you need to know, ensuring the process goes smoothly.

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.