Mortgage 101 – Refinance Reality Check

Dan Ahlstrand and Clinton Wilkins discuss refinancing mortgages, emphasizing the importance of understanding the process and considering it when a mortgage comes up for renewal.

Refinancing Mortgages: Mechanics and Best Practices

Dan Ahlstrand
This is the fourth and final segment of this Merry Debtmas edition of Mortgage 101. Clinton Wilkins and Dan Ahlstrand, along with you. And what a wealth of knowledge Tina was in those last two segments, Clinton. I really learned a lot about consumer proposals and bankruptcies.

Clinton Wilkins
You know what? I think it’s a situation that nobody really wants to be in, Dan, and I think it’s a taboo topic, but I think everything that we talk about on the show is really about education, breaking down some of the barriers. And I’ll be frank, we run into bankruptcies. We run into consumer proposals, but I can tell you, 90% of our customers were doing Prime Lending, so we are able, typically, to do a normal purchase or do a normal refinance without running into stuff like that. But it’s good to know what happens when you can’t write.

Dan Ahlstrand
And at the top of the show today, we started to talk a little bit about refinancing. What are the mechanics involved with that? What’s the best practice when it comes to refinancing your mortgage?

Clinton Wilkins
I think a natural time that someone would think about a refinance is when their mortgage comes up for renewal. Typically, it’s someone who owns a home already. Well, I guess you need to own it if you’re going to refinance it; they’re going to own a home mortgage then. But for renewal, typically, we’d like to see that consumer about 120 days before renewal, and we get an approval. Oftentimes, there is an appraisal of the property to confirm what the market value is. And we can do a mortgage for a maximum of 80% of the market value. So, I use the number a value of 600,000 because that’s the average house price now in Halifax. So we’ll say the house price is 600,000, we can then do a new credit facility for 480,000. The reason I use the word credit facility is that it’s not just a mortgage. Maybe it’s a mortgage and a home equity line of credit. The combo products certainly have been coming more and more popular, but from that 480,000 of this new product that we have, we have to pay out the existing secured creditors, right? So the money you owe, the money you owe, whether that’s a mortgage, whether it’s a line of credit, whether it’s anything secured that needs to be paid out from the proceeds.

Understanding Refinancing Pitfalls and Amortization

Dan Ahlstrand
So you’re not getting additional money.

Clinton Wilkins
You’re not getting another 480 on top of what you owe already, so whatever you owe already will need to be paid from that kind of advance.

Dan Ahlstrand
Are there any pitfalls to refinancing, or is it based on each individual’s situation?

Clinton Wilkins
Well, I think it depends on the situation. And I say every file is like a snowflake. But you know, when you do a refinance, we really look at the amortization. You know, a lot of consumers these days are choosing to do a longer amortization, just because the interest rates are higher than they were five years ago. But also, inflation is higher. The cost of living is higher. We talked about power bills and water bills. Everyone’s expenses are more today than they were five years ago. So some people are choosing to take a longer amortization, and it might not be a longer amortization forever, but it’s a longer amortization for now, just to start steadying that ship and put people in the best possible financial footing for 2026.

Dan Ahlstrand
So when you refinance, are you extending the term of your mortgage? Is that the way it works?

Clinton Wilkins
Not always. You don’t have to. Yeah, we can do a refinance and actually lower people’s amortization if, that’s if that makes sense. So I see some people like, I had a consumer actually yesterday that had $100,000 worth of credit cards and unsecured lines of credit, whoa, that’s a lot. When Tina was going out the door, I asked her, I’m like Okay, what’s the average that you see? And she’s like, 54,000 is the average that they see here in Nova Scotia. 54 is still a lot, right? 100 is more. It’s a lot, a lot. That’s a lot, a lot. Look at this consumer. They can pay their 100,000, but they’re not getting anywhere. They have so much equity in this home. I’m like, how did this happen? Why did you not refinance earlier? And it really kind of just happened since we did the last mortgage transaction. You know, things changed in their life. Cars, kids, hockey, and some health issues. There are a variety of reasons why this debt happened. And I’m like, we need to not wait until you’re at renewal. There is no world where paying $100,000, where the debt is, you know, it continues to make the minimum payments, which were about $3,000, there’s no world that that continues to make sense. So we are doing an unsecured, or we’re doing sorry, not unsecured. We’re doing a refinance early, in advance of their renewal, and the renewal is only about six or eight months away. We need to pay this penalty. It’s only about $1,600 to get out of their mortgage early. Put yourself in a better financial position. And what we’re doing wisreducing their amortization. They’re going to pay everything off much faster than they were in the beginning.

Dan Ahlstrand
But you know, there are situations where that isn’t the case. Are there penalties involved, correct?

Clinton Wilkins
Of course. So if you break your mortgage early, you’re either going to pay a penalty of three months’ interest or an interest rate differential, which is ever higher if you’re in a fixed rate, if you have a high fixed rate, and you have a long time left in your term. Chances are you’re going to pay a high penalty. If you only have, you know, 10 months left on your term, you’re probably only going to pay three months’ interest. But here’s a spoiler: if you have a variable-rate mortgage, it’s always only three months’ interest. So there certainly are some upsides to having a variable rate mortgage. Breaking it early is certainly one.

Dan Ahlstrand
So, lessons learned in this edition of Mortgage 101, for me, are that debt happens, and sometimes we get in over our heads. Life happens, but there are options out there. You don’t have to continue to just struggle to keep your head above water.

Clinton Wilkins
Well, especially if you have the equity, right, you know? And I think so many people who come to see me for refinance do come at renewal. Because I’m like, Okay, do it at renewal. Do it at renewal. Like we say this so many times on the show, but sometimes a mid-term refinance makes sense, especially if you are struggling and you have the equity in your home. A midterm refinance, you know, can be a great idea. The challenge is that today, oftentimes, people will pay a higher interest rate than they’re coming out of, because the rates today are higher than they were five years ago. But let us run the numbers,s see if it makes sense to do it early. I might say, hey, no, you need to wait. And I do say that because for me, I’d rather have sustainability. I want to put people in the best financial position. Yeah, I want to get paid, but I want to make sure that you’re also going to get good advice, and you want to come back,k like that is my you know, business model is, we are built around repeat customers. We’re not one of these businesses that only want to do it once. Yeah, doing it once, I’ll still get paid, but I want this consumer to continue doing business with me.

Predictions for 2026

Dan Ahlstrand
Clinton, it’s the beginning of a new year. We’re into 2026, of course, we’ve discussed interest rates in the past. Crystal Ball time.

Clinton Wilkins
Ooh, am I gonna fall on my sword this year? We’ll see.

Dan Ahlstrand
You know, you’ve been pretty accurate as of late when it comes to what the Bank of Canada has on its mind. What are you predicting at least for the first quarter of 2026 for the interest rates in Canada and for the housing market in Halifax?

Clinton Wilkins
Well, let me tell you what some of the predictions are from some of the big banks. Maybe this will be helpful. Then I’ll tell you what I think. Some banks think that we’re going to see the rates increase, some things that we’re going to see a hold, and some things that we’re going to see a decrease. So it’s all over the map. For me, we’re seeing fixed rates edge up a little bit. So, you know, I think that’s one thing to take into consideration. I think right now, for perspective from the Bank of Canada, I think we’re at a plateau. Will we see the rates decrease? You know what? We haven’t really said the R word very often. I think we’re in a recession. That’s not really being said that much. I’m watching GDP. That’s what I’m watching, I’m watching the job numbers. I am cautiously optimistic that the rates are going to decrease. But right now, I’ll say for the first quarter, I’m going to predict things are going to be relatively stable. I’m okay with stable. We can make some decisions. We can make some plans, you know, we can, you know, know what’s going on with our life if it’s stable. I’m going to think for the first quarter we’re going to see some stability, but I’m cautiously optimistic that we’ll see the rates decrease between now and the end of the year. I think the housing market is going to stay strong. There’s certainly a lot of listings out there. We have a lot of people pre-approved, so I know there’s still a lot of demand, but things are not moving as quickly as they were. So one would think that the prices are going to come down. That hasn’t happened in Halifax, but there was an article out today or this week. I should say that the prices continue to soften in Ontario, but that trend has not come here to Atlantic Canada, because we still have enough demand in the marketplace.

Impact of Inflation and Housing Crunch

Dan Ahlstrand
We know that the housing crunch continues. We know that is impacting the ability for people to save, to get that down payment. Do you think that’s going to continue in 2026?

Clinton Wilkins
I think, from an inflation perspective, inflation is down, but there are certainly some things that are causing some of this pain with consumers when we’re talking about food, fuel and things like that. For me, I think we’re going to continue seeing some softening, hopefully, of the rents. So I think that’ll be positive. There’s more and more housing units coming on, on hand here in Halifax, and that’s going to drive down, hopefully, some of the prices, and it’s going to free up, I think, some of this lower-cost real estate and lower-cost rentals. You know, part of the reason that we didn’t have starter homes available for first time homers, for first-time homebuyers is that a little old lady and a little old man didn’t even have an apartment they could go to, but now they kind of do. So I think a lot of this is going to start writing itself in 2026 and into 2027. I can tell you, we still need a lot more builds, and I want to see a lot more construction going on. That is my wish for the feds, for the province, for the municipality. Let’s get some shovels in the ground and get some more housing units going, all types of apartments, condos, townhouses, single-family homes. I want all styles of real estate, and I know that’s something that we’re certainly going to need over the next several years here in Halifax.

Dan Ahlstrand
You always say to Clinton that the best time to buy a house was yesterday.

Clinton Wilkins
No better time than now!

Dan Ahlstrand
We’ll see you next month.

Clinton Wilkins
Thanks for having me. Merry Debtmas!