Refinancing your mortgage for a better financial future

Is refinancing your mortgage a smart path for bettering your financial future? Many Canadian home owners are often looking for ways to protect their finances and ensure they are making the best decisions for themselves. If you are wondering whether a refinance is a wise solution for you, there are some key considerations to review before making your decision. Here’s what you need to know!

Mortgage refinance vs renewal

First of all, what’s the difference between renewing your mortgage and refinancing it? As a home owner, you know that your mortgage has a certain term length associated with it. After that term is up, you will have the chance to evaluate your situation before either renewing for a new term, or making a change to your product or lender. The most common term length in Canada is five years, meaning many Canadian home owners go through the renewal process after this length of time. Renewals are meant to give you the chance to consider whether your needs have changed, as well as your overall satisfaction with your mortgage. If necessary, this is your opportunity to make a change without penalty.

On the other hand, refinancing your mortgage means purposely breaking your mortgage term early. Home owners do this when they need to make a change in the near future, and waiting for their renewal isn’t an option. Timing is essential with a refinance, and you might find yourself in a situation where it makes more sense to break your existing term now, rather than wait it out. 

Are you a good candidate for a refinance?

As a home owner, you might be wondering about the kinds of situations when it may be beneficial to break your mortgage term early. As is the case with most mortgage-related decisions, the answer will depend on the owner. However, there are a few common reasons people may choose to refinance. 

Perhaps the most obvious reason is when the economy experiences a period of rate drops that cause mortgage rates to decrease. For some home owners, refinancing would allow them to access a lower rate than the one they currently have. This is heavily dependent on economic circumstances and the specific mortgage product of the home owner, however. Another common reason to refinance is to start paying off your mortgage more quickly. It’s possible that you are in a place where you can comfortably make larger payments, and you want to clear your mortgage debt faster. In the long run, this means you will pay less in interest. Refinancing to expand pre-payment privileges or shorten your amortization period can open the doors for you to pay off your mortgage more quickly. 

Home owners may also be interested in accessing their home equity to support a specific financial undertaking. As you pay off your mortgage, you build equity in your home. By refinancing, you can use this equity as cash flow if you are hoping to complete a large home renovation, or pay for a child’s post-secondary education. Using your mortgage to support these goals can be a compelling reason to refinance! You may extend your amortization to lower your payments and increase cash flow.

What are the potential risks?

The biggest “risk” associated with refinancing your mortgage is that you will go through the process, only to find it isn’t worth it. By refinancing, you are breaking your mortgage term, and this will result in penalties. Depending on your current lender and product, these penalties vary in size and severity, but you will not get out of your current term scot-free. This means you need to be sure a refinance is worth the cost. Will you save more than you need to spend to complete this process? If so, a refinance can be a good option. If not, a refinance is likely not the best path for you. Remember, you will also have the chance to adjust your mortgage term at renewal!

Step one: Reach out to your local broker!

If you are interested in a refinance, you shouldn’t make any further moves without consulting a mortgage broker. Your broker is your best resource for ensuring a refinance works in your favour, as they are dedicated to finding the right solution for you. We will sit down with you to discuss your goals and determine whether a refinance will help you meet them. If so, we will assist you with finding the right lender and product to meet your needs. Using a broker gives you the best solution with the least amount of headache and stress. 

Refinancing your mortgage to improve your financial future is a big step. Don’t try to navigate it alone! Reach out to your broker today to see how a refinance can benefit you as a home owner.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.