Mortgage rates are low and property values are stable, so it may make sense to refinance your home.
Many people refinance their mortgages to take advantage of lower interest rates or pay off debts with higher interest rates. Othes will use the money to invest in Registered Retirement Savings Plans (RRSPs), get a down-payment for a rental property or pay for tuition for children or grandchildren.
Expensive renovations can also be a great reason for refinancing your home.
The maximum loan-to-value percentage for a refinance mortgage is 80%.
The Costs of Refinancing
There are costs that you need to consider before deciding whether it makes financial sense to refinance your home.
The costs of refinancing your home will include lawyer’s fees, title searches, title insurance, registration of the new mortgage and taxes. An appraisal may be necessary.
There is one lender who will pay the appraisal and legal costs on a refinance for qualifying clients and properties.
The payout penalty of your current mortgage can often be a large cost. You can find the prepayment terms and penalties in your mortgage contract. Your current mortgage lender can tell you or your mortgage agent the cost of paying out the mortgage.
The Benefits of Refinancing
Now that you know the costs, it’s time to look at the advantages. Only you can decide if the cost of refinancing is worth it. When refinancing, many people lower their monthly bills and improve their monthly cash flow. Cutting monthly debt payments will reduce stress and give you the freedom to make other choices.
Using the equity in your home to top up your RRSP may trigger a tax rebate for more than the cost of refinancing you home and can help you build a retirement fund at the same time.
Using the equity in your home for large purchases means you get a better interest rate than if you financed the purchase through other means.
Other uses of equity include helping your children or grandchildren with tuition, buying a second home, or renovating your current place of residence.
Talking with the right professionals will help you make an informed decision.