Refinancing your mortgage can be a great option for freeing up equity in your home to use to your advantage in a number of different ways. The most popular reasons why refinancing your mortgage may make sense include taking advantage of lower interest rates, consolidating high-interest debt into a new mortgage, funding renovations, sending your kids to school, freeing up monthly cash flow and purchasing another property.
It’s important to understand up front, however, that you’ll probably face penalties to refinance your mortgage before your current term (the amount of time remaining in your mortgage contract) has expired. And, the more time you have left on your current term, the more severe your fees will be for breaking your mortgage.
It’s important, therefore, to discuss the payout penalty on your current mortgage – which varies by lender – with your mortgage agent and weigh this against the benefits of gaining access to your home’s equity now before making a decision.
How does refinancing a mortgage work?
When you refinance your mortgage, you’re actually taking out a new loan for a greater amount and paying off your existing one.
Refinancing a mortgage in Ontario is almost always worthwhile to save money long term. If you weigh the pros of the money you can free up to use towards a certain purpose – like financing your kid’s schooling or easing your cashflow – versus the cons of the penalty you’ll pay to break your mortgage early, you’ll be able to make an educated decision on what’s best for you.
Is now a good time to refinance my mortgage?
In low interest-rate environments such as the one we’re currently experiencing, it’s often a great time to refinance your mortgage to take advantage of the savings associated with obtaining a low mortgage refinance rate that will pay off over time.
And, in many cases, refinancing to access funds for a specific purpose, such as consolidating debt, financing renovations or buying an investment property can also prove helpful to your bottom line.
In some circumstances. waiting a little longer – ie, closer to the end of your current mortgage term – makes the most sense for your situation.
But if your mortgage term is about to expire, now’s the perfect time to consider tapping into your home equity through a refinance because you won’t have to pay fees to break your mortgage early.
Have questions about when it makes sense to refinance your mortgage or regarding your mortgage in general? Answers are a call or email away.