Mortgage REFINANCE Finally Made Simple
Refinancing your property is an excellent way to access low cost capital to consolidate debt, pay for renovations, use for investment or a whole host of other purposes. The aim of this guide is to provide the key information about mortgage refinancing and help you gain the most long term value on your transaction. Connect with us any time for questions and custom mortgage planning strategies.
Here You Will Learn
-
How does a refinance work?
-
The best questions to ask about your Refinance.
-
Costly dangers to look out for in the fine print.
YT
Refinancing in 3 Steps
Mortgage Information Refresher
A mortgage term is the length of time that the RATE is set for. The most common term is a 5 Year term, which is then re negotiated after 5 years is up on the ‘renewal date’. The Amortization is the time that the PAYMENT is based on. The longer the amortization, the lower the payment. A typical amortization is 25 years, but can be as little as a few years or as long as 35 years.
A fixed rate mortgage will guarantee your rate for the length of the term -‘set it an forget it!’. Fixed will usually carry less risk than a Variable rate wish can be lower for a period of time, but will float higher when the Bank of Canada eventually increases interest rates. Contact us for more information on which could be right for you.
In Canada, the minimum down payment is 5% – however this can be gifted by family or potentially loaned if needed. Any down payment under 20% must be ‘insured’ by the Canadian Mortgage and Housing Corporation (CMHC), or other mortgage insurer, and this requires a % based fee that is built into the mortgage – not paid up front.
To get the lowest rates in the market, the credit score should be above 680 points (out of 900). If any credit lines are maxed out or if several payments have been made late – this can negatively affect your score. If unsure of your score click here for more information.
Warning! – What To Look For In The Fine Print
High Penalties
Do you know what your penalty costs are? There are major variations in mortgage penalty calculations, with major Banks among the highest for calculating penalties. As most Canadians experience life and property changes during a mortgage term, a very high penalty calculation can easily prove financially damaging. If ‘porting’ a mortgage to a new property lowest rates are not offered on additional mortgage money, if your only alternative is a massive penalty.
Collateral Charge
Can you easily re-shop your mortgage on term renewal? The ‘collateral charge’ contract makes it very difficult to move lenders at renewal to a better rate or product, without paying for a lawyer and refinancing the mortgage. This feature is widespread in the market, and is often not well explained upfront. We think you should always get the lowest rate – both today and at your renewal date. Check out this CBC Market Watch article here for details.
Pre Payment Flexibility
How flexible and open is your mortgage? When planned properly, a flexible pre-payment privilege can go far in saving on interest and becoming Mortgage Free Sooner. Some pre-payment privileges are smaller and limited to one or two occasions per year, and on specified dates. This limitation can be costly if relied on over the long term.
Variable Rate Features
If locking your variable mortgage into a fixed rate, are you locking in to high bank posted rates, or discounted wholesale rates? This difference in lock in rate can be big, perhaps as much as 1%, and can potentially manipulate wise decisions to lock in variable mortgages to a fixed product at some future point. If you decide on a variable mortgage, get the details on the fixed rate lock in privilege.