Mortgage 101 – Is Refinancing Right For You? | July, 10 2023

In this edition of Mortgage 101, Clinton Wilkins and Todd Veinotte revisit everything refinancing. The guys discuss the reasons why people refinance, when to do it, how it works and more.

LISTEN to the conversation on Spotify and Apple

Todd Veinotte 00:04
Alright, so we’re gonna wrap up our last segment here talking about refinance,

Clinton Wilkins 00:09
We’re gonna talk about refinance. We promised our listeners we’re going to talk about refinance… and it’s such a hot topic.

Todd Veinotte 00:13
And it’s a massive topic and refinance in many ways conserve a whole lot of purposes. Right?

Clinton Wilkins 00:20
To be honest, I’m thinking about refinancing my place.

Todd Veinotte 00:23
Tell me why.

Clinton Wilkins 00:24
I haven’t done it yet. I’m thinking about it. I’m dipping a toe in the water. Like I might have even started a file thinking about it.

Todd Veinotte 00:31
Really?

Clinton Wilkins 00:31
Yeah.

Refinancing serves a lot of purposes

Todd Veinotte 00:32
Tell me why.

Clinton Wilkins 00:33
One reason, I’ve been in a variable rate mortgage. So I have a very flexible product that I can you know, pay it out very low penalty, or potentially no penalty…

Todd Veinotte 00:41
Three months interest…

Clinton Wilkins 00:42
Three months of interest. See look, we talk to you more know more about mortgage lending than you ever thought you were gonna note before in your life I’m sure. I said, before we started the show, I’ve been looking around potentially, like at a cottage. We actually put out a blog post this week about, is a cottage a good investment? I always get the itch this time of year. I’m looking at real estate all day every day. And sometimes I’m like, Oh, I think I’d like to have this one. Oh, no, I like to have this one. And I’m potentially looking at a property that might not be a cottage, it might actually be my primary residence.

Todd Veinotte 01:10
Yeah, well, you’re showing me photos of it.

Clinton Wilkins 01:12
And it might be my primary residence. We’ll see. And that I might rent out my existing property. I’m not sure. But I’m dipping my toe in the water. And, you know, I think one of the first steps that I need to figure out is how much money do I have available for the down payment and closing costs? Lucky enough, I bought my property before the property values really went up, and I got a good price on it. When I bought it, it’s worth more money. So I have some equity. So I may do a refinance, increase my total global limit, or the amount that I’m going to owe up to 80% of the market value, and then potentially use those funds for a down payment and closing costs on a new property.

Todd Veinotte 01:14
Pretty nice. Right. Yeah. Yeah. So refinancing, though, does serve a whole lot of purposes.

Clinton Wilkins 01:53
It certainly does. And people are not just doing a refi to get the down payment for another property. A lot of times people are doing a refinance, Todd right now, one to change the rate product and extend their amortization. Okay? So extended amortization really is the one of the number one reasons second reason is pay out consumer debt. So that’s really the number two reason that we see people, you know, do a refinance. I think the third reason is for investment purposes, maybe the down payment for a second home. And, you know, that’s really why we see people. A lot of the refinances we do are at renewal. And I think secondly, we see people do refinances midterm. Typically, the midterm refinances, like what I’m planning on doing for myself, is because there’s a need, right, you don’t just refinance for fun, kind of in the middle of the term, normally, there needs to be a need. You know, you want to change the rate product or the amortization, and you know, when you need to, for a certain reason, or you need to pay off some debt, or, you know, you know, need to borrow for a down payment of another property

Todd Veinotte 02:51
Getting rid of debt is massive though right, when you’re paying like – especially now when we were talking earlier, obviously, about the Bank of Canada…

How does a refinance work?

Clinton Wilkins 02:58
And I mentioned like it they’ve the government put out that consumer debt is at an all time high, and the consumer debt is higher now than it was pre-pandemic. We’ve been spending people. Yeah, we’ve been spending. And luckily for Canadians, a lot of places at least here in Halifax, I think a lot areas across the country, a lot of Canadians have some equity in their properties. So, you know, you do have the equity available, that you are able to leverage that to get this high interest, consumer debt paid off. So you know, it’s something to think about. It’s something that can really better people’s financial position. I think it’s a big decision, though, if you’re going to do it midterm, because I sometimes tell people, I’m like, when we’re close to the end of term, let’s just wait a little bit. Because we can do this with no penalty. But if you’re really in the middle of the term, and if you’re feeling the pinch, if you’re starting to feel some cracks within your personal financial, you know, package, we’ll call it, talk to someone like me. You know, is a refinance right for you? And so what let’s just talk about the mechanics of how a refinance works. I know we’ve talked about it before, but I we’re always getting new listeners. People always ask me, the value we use is not what you paid. The value we use is not what your assessment is, the value we use for you to do a refinance is the market value of your home. That’s what you could sell your home for on the open market. Sometimes the value will be accepted through a low ratio valuation system like Emily what the CMHC uses to use their values, and lenders have different valuation programs available. But if the valuation is not accepted, or if they are if the lender that is used doesn’t have a valuation program, you need to get an appraisal of your property. And the way that an appraisal works, is an appraiser is licensed, and they will compare your home to similar homes that have sold in your area, similar features and they’ll do adjustments based on the pros and the cons of your home. Whatever the value is of your home, you can refinance up to 80% of the market value. So for example, if your home’s worth $500,000 you can finance $400,000 on a refinance from that 400. You pay out any of your existing secured debt, so mortgage or home equity line, right? The difference between what the payout is and what the new mortgage is, that’s your available equity that you’re able to use for things like debt payout, buying a new home, investments, things like that. And I think there’s some misconceptions of like, what people can refinance for, they think it’s like 80% of like, what the equity is, or something like that. You know, it’s really market value 80%. And then it’s the less what you owe, that’s what would be available in terms of new money.

Todd Veinotte 05:38
And appraisals are obviously, paramount to this.

Clinton Wilkins 05:40
Appraisals are important. They’re not always required. I think when you get to the top of the valuation spectrum, usually it’s more common. And really, if you have a property that’s worth over, like $500,000 – $700,000 or million dollars, typically appraisals require, like every time.

Todd Veinotte 05:54
Yeah, who pays for that?

Clinton Wilkins 05:55
The clients pay. And most lenders require the clients to pay. Some lenders have programs where they’ll reimburse the client or they have like, cashback programs and things like that, especially if you’re new to that financial institution. We have a couple promos running right now. There’s always promos. A lot of lenders want to get new customers, I’ve said in previous shows, and I know we’re kind of coming to the end of this show. There’s some lenders that are really out of the mortgage business, they may not say they’re out. But their rates are basically telling customers that they don’t want to do business. So if you’re a mortgage lender, you know, you think the rates are way above where the market is, but don’t get me wrong, don’t get me wrong, rates are high across the board. But if you think they’re even higher than where the market is, your lender – not naming names – may be one of the lenders that, you know, really is temporarily out of the market. Lenders come and go into the market and their appetite changes. So I think it’s really important right now to ask questions.

The three cornerstones: credit, income and assets

Todd Veinotte 06:40
Alright. So there are some key things that people need to know that if you want to refinance, you obviously your credit is going to be an issue.

Clinton Wilkins 06:59
Yeah, it’s credit, income and assets.

Todd Veinotte 07:01
All that stuff, that’s all going to be, just like you’re getting a new mortgage.

Clinton Wilkins 07:05
A refinance is the same as a purchase, the difference is on a refinance, we’re not going to like get your bank statements and things like that to verify your down payment, you’ve already made the down payment. So a refinance in theory is easier, because we’re not verifying the down payment. But it’s the same verification process. You know, we still have to verify your credit, we still have to verify the employment. And you know, we still, sometimes they want to know how much you have in terms of your assets. So, you know, those are all important things. And those are really the key three cornerstones for mortgage lending across the board.

Ask key questions early before refinancing

Todd Veinotte 07:36
So quickly, if you’re coming up to renewal, and we’re kind of backtracking a bit here, and you’re having an issue potentially with credit or whatever, you may want to you may be just forced to take the renewal.

Clinton Wilkins 07:45
You may be, but I think it’s still worth asking the questions. And I see so many customers, you know, at renewal, and sometimes people that have already renewed that they wish they would have just asked the questions up front. But again, don’t ostrich. Maybe that’s the theme song of our or the theme of our show here. No ostriching; ask the questions early, and really, it’s important to start a file like 120 days before.

Todd Veinotte 08:09
Alright, lots of great information as always, what’s the best way for people to learn more about what you do and get a hold of you guys?

Clinton Wilkins 08:15
Check us out online at teamclinton.ca/radio. Lots of great information on our website. You can contact us you can see us on social media, there’s links to our podcast. You can listen to anywhere where you get your podcasts, on the Citynews website, on Spotify, Apple Music and wherever you listen your podcasts and we’d love to have you guys tune in.

Todd Veinotte 08:35
And of course if people want to see you this is recorded visually people want to see us they can see what we look like, what do you think of that?

Clinton Wilkins 08:42
I love it. You can see us obviously on YouTube, we have little shorts on Instagram and on Tik Tok. So certainly tune in and if you have any questions for us and you want us to, you know answer it live on the air live on our podcast, feel free to shoot me a message or Todd message we’d love to answer it.

Todd Veinotte 08:54
Okay, Mortgage 101 your guide to homeownership. Thanks, Clinton.

Clinton Wilkins 08:57
Thanks for having me.

Todd Veinotte 08:58
All right, we’ll be back next month.

Clinton Wilkins 09:08
If you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at teamclinton.ca