Mortgage 101 – Refinancing and New Beginnings

In the last segment we chatted about property valuation services, as well as the advantage of home prices in Nova Scotia today! This time we dive into refinancing; the reasons why, the strategy on ‘how to’ and using it as a retooling to help pay off other debt.

Refinancing with a Focus on New Beginnings

Todd Veinotte
Wow, that is that, I don’t know what to think of that.

Clinton Wilkins
I told you we’re really gonna get our energy up here.

Todd Veinotte
I feel like I’m in the gym.

Clinton Wilkins
I love it. I mean, the gym is a good place to be, especially in January and I know that we talked about, you know, New Year’s resolutions. I don’t know Todd, do you have one?

Todd Veinotte
Do I have a gym in my basement?

Clinton Wilkins
No. Do you have a New Year’s resolution?

Todd Veinotte
Oh my just Yes. As a matter of fact, I do have a New Year’s resolution.

Clinton Wilkins
You don’t need to share it with our listeners

Todd Veinotte
I’m not going to share but I do have one, it’s not even a resolution it’s a it’s kind of a ‘Zen’ goal thing type

Clinton Wilkins
Cool. I’m not a resolution guy myself.

Todd Veinotte
just be more Clinton.

Clinton Wilkins
New year, new me. I sometimes am like, New Year, worse me, New Year more me? No, I’m kidding. I’m just like, New Year, same me, and I’m okay with that. If I’m going to make a resolution, I’m going to do it in February. You know, I just always love a fresh start. And for me, I always love a new quarter or a new season or new month or new day.

Todd Veinotte
Something about that isn’t there?

Clinton Wilkins
I think that makes a really good segue into what we’re going to talk about on the segment, we’re going to talk all about refinance. And, I think that can be very daunting for people. I think sometimes there’s a negative stigma around refinancing. And people may think, “Well, I’m starting again, I pay all the interest at the beginning of my mortgage term, or whatever.” That’s not really true. You pay higher interest. Depending on the amortization length, if you do a shorter am’ less interest, longer am’, higher interest. That’s just the reality of the numbers. And, you know, mortgages typically in Canada are either capitalized semi annually or monthly. It just depends on the type of mortgage that you have and the amortization. That’s how the Interest is calculated.

Todd Veinotte
Yeah, for sure. Okay. So when it comes to refinance again, why do people think they’ve done something wrong? ‘Here I am after refinance,’ as opposed to ‘isn’t it great that I have this asset that I’ve taken care of? And I can now help facilitate getting my finances in even better shape?’

Refinancing Mortgages for Lower Interest Rates and Debt Management

Clinton Wilkins
You use a really good term earlier, instead of refinance. It’s kind of like a retool. And maybe we are refinancing to do a longer amortization. That’s very common right now, especially where the environment is, people are choosing to do a longer amortization, because they want to bring down their borrowing costs. Not so much the interest costs, but people want to bring down the amount of money that they’re putting out every month. So if you do longer term, you’re going to pay less principal. Hence the term retool. But, another reason why someone may want to refinance is they may want to do some improvements to their property. Maybe they want to do a renovation. Or for other investment purposes. This is normal. We see people that maybe own their house free and clear. And sometimes we’ll put a home equity line of credit on it or a mortgage on it for investment purposes. But, they may need to pay down other unsecured debt. Canadians are at an all time high in terms of their level of indebtedness, and you can refinance, up to 80% of the market value of the property. You may refinance to pay out lines of credit, credit cards, loans, and that is very, very common. We are very fortunate here in Halifax, that we have had the property values increase, and the people who bought a house, you know, prior to 2020, or even 2020 have a lot of equity in these properties. I really do challenge everyone who is up for renewal, it’s a great time to think about maybe doing a refinance. We still see people all the time at midterm, who want to do a refinance for whatever reason. And you know, that’s okay, too. I think sometimes it’s harder to walk away if you have a very low fixed rate. But, I think it’s looking at your situation. And I think it’s really about understanding how much equity you have, and really, how much you owe.

Todd Veinotte
Okay, so are people refinancing right now, because of the interest rates?

Clinton Wilkins
I think people are refinancing when they’re at renewal because of the interest rates. I would say that as a fact. I think that people that are at a low fixed rate right now are probably going to ride it out by and large. But if you’re up for renewal, we’re doing a lot of refinancing to either pull the equity out or do a longer amortization, or do a home equity line of credit that is very, very, very common right now.

Todd Veinotte
Again, it’s when you’d like to be able to use that money to pay down debt or put money into your house. So it’s unfortunate when you just simply can’t afford to do that, just because the interest rate or the mortgage payment is going to be too high, based on the current interest rate in our sphere.

Clinton Wilkins
Yeah, you know what, I’ve had clients that have very aggressively paid down their mortgages over the last couple of years. They were at a very low rate, I think they had like 15 years left on their amortization. And now they’re down to like five years. But now it’s coming up for renewal. We chatted and they said, “Clinton, like we just can’t handle paying at this rate.” On the other hand, there’s one I just increased with 13 years of amortization. And they said, “you know, what, Clinton, this is not forever, you know, we’re going to do a variable rate, and we’re going to hope that these rates are going to come down. But in the meantime we’re gonna leverage things like payment increase, or a lump sum payment, we’re doing this to just protect our financial future.” And to me, this makes really great sense. It’s gonna give them that flexibility that they can plan and make some decisions.

Todd Veinotte
When do you see some of the largest numbers of increases, when people’s interest rates are renewed or when their mortgage renews? And, What are some of the biggest numbers that you’ve seen?

Clinton Wilkins
Well, this is where the misconception is, if your interest rate doubles, your payment is not doubling, but your interest carrying cost is doubling. That’s what you need to remember. I’ve seen clients that are paying $1,000 and $2,000 more per month, because of the higher interest rates. But it all depends on how much you owe, you know, if you only owe $200,000, maybe it’s only going up a couple $100. Right? But if you owe a million dollars, maybe it’s gonna go up a couple grand. It really depends on how much you owe, and what type of rate you had.

Mortgage Amount Doesn’t Always Reflect Financial Situation

Todd Veinotte
And ostensibly, there’s a misnomer that, well, if you’ve got that kind of mortgage, then you’ve definitely got an extra $1,000 kicking around, right?

Clinton Wilkins
I can tell you, the people who have a mortgage for a million dollars, they don’t have a couple $100 lying around. They likely don’t have a couple $1,000. I’m not gonna say this is like, by and large the rule. But I can tell you, there’s people that have a mortgage at $200,000 who have tons of money in the bank, there’s people that have a mortgage of $200,000 that are paycheck to paycheck, the amount you owe, has nothing to do with your economic situation. And I think that’s a misconception that we have. We see this big mortgage amount, and assume that these people owe 700,000 $1,000,000 – 2 million dollars, whatever the number is, that they must be rich. Not always.

Todd Veinotte
No, no. Okay, so when it comes to refinance, obviously, people they’re gonna have to go through their credit again, of course, they’re going to have to treat it like it’s a new application completely, fully underwritten. So be prepared to know what you require.

Clinton Wilkins
Yeah, we always love to have a really good idea of where things are at. I never want to go through the process and get someone to an approval if it’s not going to be like rock solid. I’ve been doing this a long time, Todd, as you know, I’ve been doing this 17 years, and we’ve done almost one and a half billion dollars worth of mortgages, and over 5000 transactions, we know what we’re doing. And I’m like, Just give me these few things and then we’ll know where we’re at. Usually that includes a list of your assets. But then we also verify the income and the property details. So we’ll get like the previous mortgage statement and the property tax bill. We want to know how much you owe. We want to know how much you’re worth. And we want to know how much you make. Those are really the things that we want to know. Because when we get an approval, I want to know I’m going to the right lender. And I also want to know that we’re going to give you the right setup for the next years of your life. Because everybody’s situation is different. I want to know how long you’re gonna keep this property. What are your plans? Is your life changing? And I mean, not everyone has a crystal ball per se. But sometimes people know what’s going on and where they want to be. For example, clients may say, “hey, Clinton, I’m retiring in five years,” perfect, that might change my plan, I might change my recommendation on how we’re going to proceed.

Todd Veinotte
And give you good information. Don’t hide anything. Just get it out there in the open.

Clinton Wilkins
I’ve seen everything people like honestly, there’s nothing that I haven’t seen. And although I’ve done so many transactions, every day, yes I see something new, but just due to the amount of experience that we have, like with me and our team we are equipped to work through these challenges. And I always say we can get a mortgage for everyone. It’s just how challenging your situation is. And do you have enough equity or do you have enough skin in the game to make it work.

Todd Veinotte
Absolutely! So tied into that we have our next guest in the next segment who we were chatting with.

Clinton Wilkins
We’re going to have Tina Powell on from MMP. So she’s going to really talk to us more about debt trends. And she’s also in the insolvency practice. So she’s going to talk to us about things like, ‘what does bankruptcy look like? What does a consumer proposal look like?’ And you know, these people that might not be on to refinance, or if you don’t have a home and you’re unable to leverage the equity, you know maybe that could be a good step so we’ll be interested to hear what Tina has to say.

Todd Veinotte
Okay mortgage one o one your guide to homeownership we will be back!