Mortgage Refinancing: When Does it Make Sense?

Mortgage Refinancing: When Does it Make Sense?


Team Mundi

Published in


10 Jun 2021

Refinancing your home allows you to access the funds you need to consolidate debts, home renovations, investing and for emergency funds. Over the years, individuals build up equity in their home by paying a portion of the principal with every mortgage payment. Another option is to use equity in your house to increase mortgage amount for larger expenses such as education, buying boat/car or to start a business. You can borrow up to a maximum of 80% of your house value less any outstanding mortgages, subject to credit approval.

When should I refinance my mortgage?

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Home renovations: Whether you’re thinking about a small improvement or large makeover, using the equity you have built up may be one of the most cost effective ways to finance a major renovation.

Debt Consolidation: An equity take out is most often used to consolidate higher interest rate debts, such as credit cards. You can merge higher interest rate debts into one monthly payment with a lower interest rate.

Investing: Borrowers may refinance their existing property to purchase new properties, cottages, stocks, or any other investments. Refinancing your existing home can be great way to cash out equity for the down payment of your investment property. You can also refinance to buy RRSPs. This can help offset the income tax that you owe at the end the year.

Emergency funds: In case of unexpected job loss, medical expense or an economic downturn, you can use equity without selling your home. Refinancing can help you manage through challenging financial times.

Home line of credit: A home equity line of credit works as a credit card that’s secured by your home. It gives you access to funds as you need them. You are required to make interest only payments each month on the outstanding balance. Line of credit gives you flexible repayment options and reusable credit. Borrowers can have access to a reserve of cash over a period of time rather than all upfront.

You can consider breaking your mortgage early if you want to obtain a lower interest rate. Make sure you consider the fees before you decide to refinance. There will be legal fees, appraisal fees and possible prepayment charges. By refinancing at the end of your current mortgage term, you may be able to avoid prepayment charges. To help with the costs, individuals tend to refinance when interest rates are lower. Even a slight reduction in the interest rate can lower your monthly payments.

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