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Is it the Right Time to Refinance Your Home?

There are many reasons why Canadians opt to refinance their property or home. Refinancing can free up necessary funds at a much lower rate than putting upcoming expenses on high interest credit products can, and could actually reduce the payments you are making monthly.

If, at current, you are weighing the pros and cons of refinancing your home, take the following points into consideration. Choosing to refinance will involve paying penalties, in most cases, but if you can refinance into a lower rate mortgage product, the penalty fee may quickly be recovered.

Though refinance has become a bad word to many, there is no reason why it need by in all situations. Ask yourself the questions below to gauge the applicability of a mortgage refinance meeting your current financial needs.

  • Are current interest rates at least one point less than the interest rate you are currently paying on your mortgage? If they are two points less do not hesitate; contact a mortgage broker.

  • Is your current mortgage rate adjustable, interest-only, or negatively amortizing? Are the terms of your current mortgage prohibiting you from building equity in your property? Now may be the time to lock in and secure a low fixed rate with a mortgage refinance, offering you more stability and the benefit of accruing equity.

  • Has your current property built equity in excess of 20 per cent? Refinancing now may mean no longer needing to pay mortgage insurance on your home, which could save you more than $1,000 per year.

  • Could your credit score be improved from refinancing to free up extra funds to lower other bills? If your debt looks like it's nearing the point of overshadowing your income, it may be time to make funds available to pay for basic, household bills, consolidate debts, lower the minimum monthly payment on those involving creditors, and improve your credit score. Having a low debt to income ratio and high credit score improves the interest rates you will qualify for on everything.

  • Are there circumstances on the horizon that require you to make a significantly large payment? Many Canadians choose to refinance because they require funds to put toward another use, such as a down payment for a second property, college or university tuition, a promising investment opportunity, a business start-up, major renovations, etc. Freeing the funds this way can be significantly less costly than trying to secure another type of loan or line of credit. However, if you are refinancing into a longer amortization period, consider the costs overtime. Do you want to be paying an extra ten years of interest payments? Could you take out a home equity line of credit and pay down the amount you use in far less time?

Before taking the final step in initiating a mortgage refinance, take the time to calculate all costs, including the interest you will pay overtime and closing fees, to ensure that you are really benefitting financially from your decision. If refinancing only means breaking even, it is probably not the right direction for you to take.

If any of the points above really stood out as relevant to your personal situation, contact a mortgage broker straightaway. Choosing to refinance for the right reasons can mean hundreds of dollars in savings every month. A mortgage broker will help you examine your unique case and deduce if refinancing your mortgage is the right stratagem to optimize your financial future.