Mortgage refinancing is a simple process. It’s really all about paying off one existing mortgage with a brand new one. It’s important for people to remember that to take advantage of a refinance you need to break an existing agreement.
This process can allow you to get a lower interest rate, tap into the equity you’ve built up, and change your mortgage before the term is up.
As you can imagine, this is a financial move you’ll want to think through from several angles.
What are the benefits of refinancing a home?
Most Canadians understand that a mortgage is the single biggest payment they’ll take on in their financial lifetime. There are some big benefits to refinancing if it’s done at the right time for the right reasons. Here are a few of the advantages to help you make up your mind.
- Refinancing can help you lock in at a lower mortgage rate. This is the first one on the list for a good reason. Locking in on a lower number can help you save on interest costs. Lower interest rates can even help you shorten the term of your mortgage in some situations. Investopedia suggests a good rule of thumb is locking in if the offered rate is 1% lower than your current one.
- Refinancing can help you access the equity you’ve built up in your home. Exchanging an existing mortgage for another one is called a cash-out refinance. The CIBC reports that you’ll need a minimum of 20% equity to get one of these products.
Some homeowners are looking to consolidate their debts at lower rates through refinancing. Regardless of what you want the money for, it’s important to understand the steps involved
How does the refinancing process work in Ontario?
After you’ve gone through the initial mortgage process, you’ll be somewhat familiar with the refinancing process. Here are the steps you will need to take.
- Setting a clear goal is the first step. Taking out a brand new home loan can help you to cash out your equity, lower your monthly payment and consolidate debts. Those are just a few options. You may want to lock in a lower interest rate.
- Taking a good look at your financial situation is another important factor. Remember, lenders will take a look at your employment and income history and the equity that you have on your property. They will also look at the current value of your home.
- Take a look at some financial scenarios to compare potential costs versus potential savings. For example, if a refinance costs $5,000 in fees, and your new payment is $100 lower than the previous one, you’ll need to be in the house for 50 months to make it all worthwhile.
The mechanics for refinancing usually involve a brand-new principal and interest rate. The lender you use takes the newer mortgage to pay off the older version. That way, you’re left with only one payment.
Here’s a final tip about the process and what you should be looking for. It’s a good idea to try to get an interest rate that’s half a percent lower than the one you have. That will account for any additional fees and costs you need to pay during the process.
Of course, you’ll need to have your paperwork in order.
What documents are needed for home refinancing?
Here’s a quick checklist of the documentation that you’ll need to get the process started.
Government Identification
These will need to be government issued and have your current address. You’ll also need your SIN number.
Proof of Income
Recent pay stubs can verify your income. You should have the most recent two or three ready to show a lender. A T1 general tax form will tell them how much you earned the previous year. A notice of assessment from the Canada Revenue Agency will let lenders calculate a debt to income ratio.
Employment Letters
These prove you have a stable job. They should include your current title and role and how long you’ve worked for the company. Self-employed people must submit the same documents but for a longer period.
Having the right documentation is a big part of the process. So is choosing the right lender.
What factors should be considered when choosing a refinancing lender?
Choosing the right lender for a refinance can help you avoid unfavourable conditions like a longer term and less flexible repayment choices. Consider these factors when you’re making a decision.
- Whether you stay with the same lender or look for a new one, you should shop for the lowest interest rate. That’s one of the big goals of any refinance.
- You’ll also need to choose a company that has the lowest fees. That includes the upfront ones, like the closing costs plus the late payment and other ongoing fees.
If you’re changing lenders to refinance, make sure to sort through the online reviews before you make a decision.
Are there penalties or fees associated with refinancing a home in Ontario?
A mortgage refinance can come with several costs, including legal fees and home appraisal fees. If you switch lenders, you might need to pay a mortgage discharge fee. Depending on the province you live in and the way you register, you might need to pay a mortgage registration fee as well.
Finally, don’t forget to look into any mortgage prepayment penalties. These penalties can be the highest cost for a refinance. They can average out to 3 months of interest on the interest rate differential or your remaining balance – whichever number is higher.
Looking to Learn More About A Mortgage Refinance in Ontario?
Mortgage Broker Store offers a variety of different mortgage-related products, including refinancing. Mortgage applications not meeting traditional lending institution requirements are a focus. We have private lenders, brokers, and licensed mortgage agents who work with us. We can help you prepare for and get a private loan that suits your requirements.
Email ron@mortgagebrokerstore.com or call 416-499-2122.
