Today’s economic climate is beset by the unpredictable daily rise and fall of the stock markets, changing laws and regulations, along with shifting interest rates and bond yields which directly impact mortgage rates. With the US saddled in uncertainty and the Canadian markets unsure about the future, most lenders in Canada have tightened their loan criteria for customers and this includes borrowers looking for mortgage refinancing in Canada.
Mortgage refinancing is the process where homeowners can pay off their existing mortgage and any outstanding claims against the property and then set up a new mortgage. There are many reasons why you may want to consider this option such as if current rates are lower than your existing mortgage or if new products have come onto the market which is a better fit for your personal situation and circumstances. If that’s the case then it might be worthwhile to calculate the total cost savings versus the benefits to consider mortgage refinancing. It is a good idea to review your mortgage annually, even if you are in the middle of your term (such as year 3 of a 5 year fixed rate deal) as many homeowners needlessly spend thousands of dollars on their mortgages that could be spent on other things.
A good mortgage broker can help you with this decision as it is complicated, especially with the recent developments that have affected world markets, and mortgage shoppers can expect a more difficult time in applying for mortgage refinancing in the upcoming months.
The Benefits of Refinancing
Refinancing is very beneficial for borrowers and there are many reasons why you may opt for it as it can enable reductions in mortgage rates and monthly payments and provide extra cash for capital to buy investments, purchase an investment property, finance your children’s university education, renovate your home or for debt consolidation.
Refinancing to buy other investments
One of the ways you can use refinancing to improve your financial situation is to take out the equity in your home and purchase other investments or swap your debt to transfer non-tax-deductible debt into deductible debt. This is obviously quite complicated so a good financial planner or mortgage broker will be able to help you with this. If this is done properly you can benefit by reducing your monthly payments or make some of your mortgage interest payments tax-deductible, sometimes resulting in tax cuts of almost 50% for high-income earners.
Another huge benefit of mortgage refinancing in Canada is to use these additional funds to pay off some of your other monthly bills if they have gotten out of control, or even consolidating these debts into one payment at a lower interest rate. This will decrease your monthly payments and help you to get your debt under control so you can get back on your feet and a mortgage broker can help you with this as well.
Refinancing two mortgages into one mortgage
If you are among the estimated 10% or so of Canadians who are lucky enough to own 2 or more properties, or find yourself in a situation where you have two home loans on the same property such as a mortgage and a secured credit line, you can actually combine them into a new mortgage providing the total amount does not exceed 90% of the property's value. If the new mortgage is over 75% of the property value, normal high ratio insurance and guidelines apply. This can help with your cash flow and access funds from the home or home equity for personal use or investing.
Increase the Odds of Securing Mortgage Refinancing
With lenders in Canada tightening lending criteria for refinancing applications, how can you improve your chances of getting refinancing? Here are some pointers you should remember when applying for a refinancing loan.
1. Make sure your credit report is cleaned up
Having negative entries on your credit report, as we outlined here, can adversely affect your chances of getting refinancing.
Make an effort to thoroughly clean up your credit report so that you will have greater chances of qualifying for refinancing. Keep in mind that having a number of negative entries could result in a low credit score, preventing you from getting the right type of loan you desire. In addition, make sure that you have a creditable financial standing by keeping your outstanding debt low.
Your application for loan refinancing would have a greater chance of getting approved if you have a low ratio of debt to income. You can achieve this in several ways. For instance, if your credit card debt has reached more than three-quarters of its credit limit, then you might have to pay your outstanding debt or have it transferred to another credit card that charges a lower interest rate.
2. Be transparent in your refinancing application
Provide all the relevant information to your lender so that your broker can work out the best deal for you. While you might expect your broker to give you the best terms and conditions, do not expect this to happen unless you divulge as much information as you can on your credit history and your current income.
3. Compare mortgage rates
From there, you can pick the lender offering the best rates under the clearest terms. Read the T&C’s carefully and make sure that the agreement does not have any hidden costs that can surface only after you sign the deal with your creditor, and be sure to compare mortgage rates to ensure you’re getting the best deal and not overpaying when you don’t need to!
The very flexible rates and terms involved—some stretch up to 35 years— can make mortgage refinancing in Canada very attractive. It enables borrowers to put the equity in their homes that they have built up over the years to work and purchase property investments or to make a down payment on an investment property. During your next annual mortgage review, you may want to consider mortgage refinancing and be sure to get a trusted specialist to help you out.