A mortgage refinance is by definition paying off your existing mortgage by signing up for a new one.
People apply for a mortgage refinance to access home equity, get a lower rate to improve cash flow, or consolidate their debts. It involves breaking or early renewing the current mortgage and starting a new one. A refinance can be taken up with the old mortgage lender or signed with a new provider.
Here are some reasons why you would look to refinance:
Refinancing for lower interest rates
If you have sky-high repayments, you might want to refinance your mortgage to get a lower interest rate. When you add the prepayment penalty to your mortgage’s outstanding balance, you may end up paying less if you break your mortgage and sign for another one. This is especially true in cases where rates have dropped since you signed your mortgage.
Here is a great calculator to help you understand how refinancing and interest savings could help you pay off your mortgage sooner.
For example, if you have a variable-rate mortgage, you will pay the equivalent of three months’ interest. A fixed mortgage rate will incur the greater of three months interest or an interest rate differential penalty, known as IRD.
There are two ways to calculate the IRD. There is the posted rate method, which is used by major banks, and the published rate method, which is used by monoline lenders and most credit unions. Knowing these penalties and how they are calculated will help you determine if a refinance will truly help you save more. Unbiased advice from the Ingram Mortgage Team can help you understand if you can refinance and if the cost is less than the overall savings.
If you are worried about refinancing during the pandemic check out our advice on what that will look like for you here.
Refinancing to access equity
This process also allows you access to the equity you have built-in your home. Minus outstanding debts, you might gain access to up to 80 percent of your home’s value. This is important for homes that need an infusion of cash for renovations, investment opportunities, or tuition payments. This can be achieved through taking a HELOC or home equity line of credit, or by blending your mortgage.
A HELOC allows you to access your home equity; it works like a credit card line and it has much lower interest rates since it is a secured loan. Most lenders can give you access to a HELOC. If your current lender does not offer a HELOC the Ingram Mortgage Team has access to other lenders.
Most lenders will offer a blended rate of your current mortgage plus additional equity you can obtain at current rates. Note, though, that you won’t be getting a current rate but something that generally is slightly higher. Always compare your blended rate with the savings you can get if you were to break your mortgage.
Refinancing for debt consolidation
For homes with enough equity, it is possible to pay-out other debts, especially high-interest ones, using a mortgage refinance. If you have a car loan, credit line, or credit card bills, you can use the money you will get from consolidating to pay these debts off.
If you are 55 or over you may qualify for a reverse mortgage. Get more information on what that means for you here.
Take a few minutes and book a meeting with the Ingram Mortgage Team to see if this is the best way to get your finances in order. We can help you understand your options by giving you a detailed assessment of your situation. If you have done your homework and are ready to refinance, we can help you determine the best solution and make the process stress free.
If you’re looking to apply for a mortgage in Langley, contact our experts at the Ingram Mortgage Team today. We will always provide expert, unbiased advice and help turn your largest debt into your greatest asset.