Many Canadians are struggling to make mortgage payments throughout the pandemic; between job loss and economic instability, making mortgage payments may become more challenging as the pandemic continues.
If you find yourself in limbo with your mortgage, it might be time to consider refinancing. First, you need to do your research and understand mortgage refinancing and how it could benefit you.
What is mortgage refinancing?
When you refinance your mortgage, it means you are trading in your original mortgage for a new mortgage with a renewed balance. The refinancing process involves your bank or lender paying off the remaining principal on your existing mortgage with a new one.
If you’re considering refinancing your mortgage, answer the following questions:
- Do you pay your monthly minimum payments?
- Every month, is it getting difficult to make multiple payments on your bills and mortgage?
- Is your mortgage being charged a higher interest rate than the current rate offered on the market?
- If you had extra money, would you invest it in purchasing stocks and bonds?
- Are you not satisfied with your current mortgage agreement?
If you answered ‘yes’ to these questions, then refinancing your mortgage is a good option. Let’s take a look at the benefits that come with mortgage refinancing.
1. Get a lower interest rate
The main reason why many homeowners are refinancing their mortgages is to receive a lower interest rate. Now that the pandemic is affecting the housing market, interest rates are lower than before. Before refinancing, check out the current mortgage rates with your bank or lender to see how much less it is than your current interest rate.
A difference of a single percentage or two can change your financial future. We must inform you that refinancing your mortgage involves paying some fees. Be sure you can recoup these fees by living in the house during the new terms set in your original mortgage agreement.
2. Gain equity faster
Refinancing your mortgage with larger payments throughout a shorter term might seem scary at first. But here’s why it can be an excellent solution for some homeowners. When you go from a 25-year mortgage to a 15-year mortgage, you gain equity a lot faster while saving you money in the long run based on the lower interest rate set in the refinanced mortgage agreement.
3. Get a shorter loan term
Along with gaining equity faster, refinancing your mortgage to a shorter loan term is a good option. The benefits of getting a shorter loan term are you pay less interest, and you can pay off your other debts faster, as well. You could add to your savings if you can secure a lower interest rate and shorten your term.
Be realistic and understand that your monthly mortgage payments will increase if you agree to a shorter loan term. Create a budget and see if you can afford higher prices or you risk defaulting on your refinanced mortgage.
4. Your house’s value has increased
For homeowners who bought a house over ten years ago in a neighbourhood in Mississauga or the GTA, check to see your house’s current value. If you live in an area that has become a highly sought location, chances are your property’s value has increased. In this case, a refinance mortgage in Mississauga is a great move. Even if your property’s value has gone up, banks usually give a lower rate to those who have more equity.
5. Consolidate high-interest debt
If you have a large amount of high-interest debt with credit cards or personal loans, refinancing your mortgage can help pay off those debts. By refinancing your mortgage to consolidate your debt, you combine all of your debts and pay one lump sum every month instead of making multiple payments.
Once your mortgage is refinanced, your previous mortgage is replaced with a new mortgage loan and includes the amount put towards the repayment of your other debts. What’s important to consider before consolidating your debts with the new mortgage loan is the total interest costs.
6. You need funds for home renovations
If you’ve wanted to renovate your home for some time but don’t have the money, refinancing your mortgage may help offset the cost of home renovations. For example, adding a garage, a home office, sunrooms, landscaped yard, and furnished basements adds value to your home and brings back a return on investment.
If you want to refinance your mortgage for investing in home renovations, create a plan, and include the projected budget cost. Be realistic on how much you want to spend and outline all calculations on the home renovations and ask yourself if you will repay the amount.
7. You want to switch to a fixed-rate mortgage
Refinancing your mortgage is an excellent financial move when you want to switch from a variable-rate to a fixed-rate mortgage. Compare your current interest rate with the current interest rates that are being offered in fixed-rate mortgages. If it’s less than what you are paying now, a fixed-rate mortgage could provide some peace of mind for the future because you won’t have to worry about fluctuating interest rates.
At sMp Mortgages, our team of professional mortgage agents has over 50 years of experience advising home buyers on different types of mortgages suitable for your budget and lifestyle.
If you would like more information on refinancing a mortgage in Mississauga, Toronto, and the GTA, call sMp Mortgages at 1-844-MY-PLAN (1-855-915-5139) or contact us here.