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If
you are looking to refinance your current mortgage you will be
doing so for one of three reasons; to consolidate debts, to reduce
your interest rate or to get equity out of your home. We will
deal with each of these issues separately. The underlying message
is to seek out professional advice because your situation is unique
and it needs a unique solution!
Debt
Consolidation
Refinancing
your mortgage to pay off other debts can save you money. If you
are perpetually carrying large credit card balances, or have other
high interest rate loans, it may make sense to consolidate these
debts into your mortgage.
Not only will you reduce the interest rates you are paying but
you will also improve your monthly cash flow.
You
can refinance these debts several ways. You could consolidate
all your debts into one big mortgage, just add a small second
mortgage or even a secured line of credit. The route you take
will depend on your particular situation.
Reducing
Your Current Interest Rate
If
you are locked into a high rate mortgage you may want to break
your current mortgage contract and renegotiate a new mortgage
with a lower rate. The first thing that you should realize is
that unless your mortgage contract specifically allows for this,
your current lender is under no obligation to allow you to renegotiate
your mortgage rate. Having said this, most lenders will allow
you to prepay your mortgage with the greater of a three month
interest penalty or an interest rate differential calculation.
You should begin by finding out what your lender will charge you
to renegotiate your mortgage rate. Once you determine the penalty,
then you can begin to calculate the potential benefits of a lower
interest rate.
Equity
Take Out
Many
Canadians choose to refinance their mortgage to finance a new
addition, for an investment opportunity, to help their kids buy
a home, to finance a new business etc. Each situation is unique
and as such advice on how to structure such a transaction is unique
to the individual.
Bottom
Line
When
it comes to refinancing there can be many ways to structure the
same transaction and you need to know all your options before
you can make an informed choice.
When
you are ready to make an informed choice just let us know.
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