Clinton Wilkins and Todd Veinotte welcome special guest Brenna Charles with FCT to discuss the mechanics and benefits of changing mortgage lenders.
Mortgage refinance vs renewal: What’s the difference? Sometimes, these terms are used interchangeably, but they’re not the same! Although they both involve your mortgage terms, it’s important to know how to differentiate between them. We’re going to review how a refinance and a renewal work, when you might consider these options, and why a broker is your best path forward.
A mortgage refinance involves making changes to and renegotiating the terms of your existing loan. When you make these changes, you’re basically creating a new mortgage loan to take the place of your current loan. For example, if you want to change the interest rate or amortization period on your mortgage, refinancing can help you form a new agreement with these changes in place.
The most common reason people want to refinance is because the mortgage terms they agreed to a few years ago don’t suit them anymore. As time passes, our needs change. Home owners might find themselves wanting to access equity to complete a home renovation or help support a child’s post-secondary education, and a refinance helps unlock that home equity and increase cash flow. People may also want to pay off debts, or shorten their amortization period so they can pay off their mortgage faster. The overall point of refinancing is to make a change to your mortgage to save money or unlock home equity.
Should you refinance right now?
Is it a good time to refinance your mortgage these days? It depends on your needs. We’re no longer in the midst of those record-low interest rates from 2020 to early 2022. However, that doesn’t mean a refinance isn’t right for you. A refinance can do much more than just lower your rate. For example, if you have enough home equity and want to take on home improvement projects, a refinance can help you access that cash flow. Today, with inflation and the cost of living overwhelming us all, refinancing to extend your amortization period might also help. This means you will make smaller payments each month, and stretch out your payments over a longer period. While it will take longer to pay off your mortgage, you will have some more financial wiggle room each month by paying less.
A mortgage renewal is something every home owner will experience. Mortgages come with term lengths, for example, five years. After that time is up, the borrower has to renew their mortgage to continue on with making payments. This is a chance to take a look at your existing terms and see if you need to make any changes. While you can do this with a refinance during your term, a renewal is the chance to review at the natural end of your term. However, with a renewal, you’re not breaking your existing terms the way you are with a refinance. This means you’re not going to face the penalties borrowers who refinance might. Once you renew your mortgage, you’re all set for the next term!
Important things to consider before renewing
When your mortgage comes up for renewal, don’t automatically sign on for another term without considering your situation. While it’s the normal response to agree to renewing with your current lender and terms, your needs may have changed. Take advantage of this time to shop around, looking for potential lenders or products that may suit you better or save you money. If you find your current situation is best for you, that’s great too, but don’t miss the chance to browse around at renewal time!
Speak to a broker!
Speaking to a broker about your refinance vs renewal options is the best way to ensure you’re making the right decisions for yourself. If you’re considering making any changes to your mortgage, let a broker help you find the right lender, product, and rate. We have connections to the top lenders and the best products for clients, meaning it’s much easier to secure the best mortgage with a broker’s guidance. Knowing all the ins and outs of refinances and renewals is tricky, but we can take away a lot of uncertainty.
Today’s mortgage climate is changing, as the housing market is entering a different pattern and interest rates are on the rise. 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.