With property values in Canada seeing consistent growth and mortgage rates constantly evolving, the idea of remortgaging (or refinancing) has become a popular topic among Canadian homeowners. But what exactly is remortgaging, and how can it benefit you? Read on to explore the myriad advantages of remortgaging in the Canadian context.
1. Introduction to Remortgaging
Remortgaging involves replacing your current mortgage with a new one, often with a different lender. Homeowners consider remortgaging for various reasons, from tapping into the equity of their home to securing a better mortgage rate.
Remortgaging offers Canadian homeowners an array of potential benefits. From accessing equity to restructuring mortgage terms, it’s a flexible financial tool that can adapt to a homeowner’s evolving needs. However, it’s essential to consider the costs associated with remortgaging, such as penalties for breaking your current mortgage or legal fees. As always, it’s wise to consult with a mortgage professional to evaluate your options and make informed decisions that suit your unique circumstances.
2. Accessing Equity
One of the most common reasons homeowners consider remortgaging is to access the equity they’ve built up in their homes. This could be used for:
- Home improvements: From kitchen renovations to adding a new deck, home improvements can enhance your living space and potentially increase the value of your property.
- Debt consolidation: By consolidating high-interest debts into a lower-interest remortgage, you can save money and simplify your monthly repayments.
- Major purchases: Whether it’s buying a car, funding a child’s education, or even investing in another property, equity can be a valuable resource.
However, rather than remortgage you could simply apply for a HELOC if you require flexible access to credit based on home equity.
3. Securing a Better Interest Rate
Mortgage rates fluctuate based on various factors, including the Bank of Canada’s policy decisions. If rates have dropped since you secured your original mortgage, remortgaging could allow you to benefit from these lower rates, potentially saving you thousands of dollars over the life of your mortgage.
4. Restructuring Your Mortgage
Financial situations can change, and what was an ideal mortgage product for you five years ago might not be the best fit today. Remortgaging allows homeowners to:
- Switch between fixed and variable rates: Depending on market predictions and your risk tolerance, you may wish to switch your mortgage type.
- Alter the mortgage term: If your financial situation has changed, you might want to pay off your mortgage faster with a shorter term or reduce monthly payments by extending the term.
5. Enhancing Financial Flexibility
Remortgaging can offer increased financial flexibility. For example, if you’ve seen an increase in income, you might remortgage to a product that allows for larger overpayments without penalties. This lets you pay down your principal faster and save on interest.
6. Diversifying Investments
Some homeowners use remortgaging as a tool to free up capital for other investments, such as starting a business or investing in the stock market. With the equity from their homes, they can diversify their investment portfolios, potentially realizing higher returns in the long run.
7. Overcoming Financial Difficulties
Life can throw financial curveballs, from job losses to unexpected medical expenses. By remortgaging, homeowners can reduce their monthly payments, providing some breathing room during challenging financial times.
8. Addressing the Potential Costs
While remortgaging offers several benefits, it’s vital to be aware of the associated costs. Here are a few to consider:
- Breakage fees: If you’re terminating your existing mortgage before its term ends, you might incur a penalty. These fees can be substantial, especially if you’re breaking a fixed-rate mortgage in a declining interest rate environment.
- Legal and administrative fees: Remortgaging usually requires legal paperwork, which may involve hiring a lawyer or notary. Moreover, the new lender might charge administrative fees for processing the mortgage.
- Appraisal fees: Your new lender will likely want an up-to-date valuation of your property. This means you’ll need to pay for an appraisal.
9. Factors to Consider Before Remortgaging
While the benefits are appealing, it’s essential to evaluate several factors before taking the plunge:
- Current mortgage terms: Review the terms of your existing mortgage. Some products might offer flexibility for changes without needing to switch to a new lender or product.
- Market conditions: While current low rates might tempt you into remortgaging, it’s crucial to consider future rate predictions. If rates are expected to drop further, it might be worth waiting.
- Your financial goals: Align your decision to remortgage with your broader financial goals. Are you looking for short-term relief or long-term savings? Your goals will significantly influence the mortgage product you choose.
10. Seeking Professional Guidance
Navigating the remortgaging landscape can be complex. That’s why many Canadian homeowners turn to mortgage brokers or financial advisors for guidance. These professionals can offer:
- Tailored advice: Based on your financial situation and goals, a broker can recommend mortgage products that align with your needs.
- Access to multiple lenders: Mortgage brokers have relationships with various lenders, some of which you might not be familiar with. This can open the door to better rates and terms.
- Negotiation power: With their industry knowledge and relationships, brokers can often negotiate better deals on behalf of their clients.
Remortgaging is a powerful tool for Canadian homeowners, providing an opportunity to adapt to changing financial circumstances, access equity, and potentially save significant amounts in interest payments. However, it’s a decision that requires careful consideration and, ideally, expert guidance. By understanding both the benefits and potential pitfalls, homeowners can make an informed choice, ensuring their mortgage aligns with their long-term financial aspirations.