Should I Refinance my mortgage?

In the last couple of weeks I have spoken with many first time home buyers but also about 7 families who wish to refinance their existing mortgage. As I often mention, every mortgage is unique and there's no one size fits all solution, and when it comes to refinancing it's important to understand some basics and where you stand.

If you wish to refinance your mortgage, then there has to be a good reason for it.

Here are 3 Good Reasons to Refinance

1. Debt Consolidation – Because Credit Card Interest is Highway Robbery

   1. If you’re drowning in high-interest debt (20%+ credit cards, 12%+ Line of credit ), not the ideal situation to be in, but life happens! Refinancing can bundle that into your mortgage at a much lower rate. This means:

   2. Lower overall interest costs (because paying 5% is way better than 20%)

   3. One easy monthly payment instead of juggling multiple bills. A client had 15 simultaneous bills, literally a payment every other day!

A credit score boost by reducing your utilization in a few months.

2. Cashflow Management – Keep More Money in Your Pocket

   1. Are you locked in at high mortgage payments or your family's financial situation has changed? Refinancing can help by:

   2. Extending your amortization (e.g., from 20 to 30 years—yes, it means paying longer, but you get breathing room NOW)

   3. Locking in a lower rate (often discussed here, because let’s be real, aren't we all watching rates like hawks?)

More cashflow = more room for savings, investments or splurging.

3. Equity Takeout – Put Your Home to Work

   1. Need funds for renovations, investing, buying another property or simply an expensive vacation (that would actually be a very Canadian thing to do)? You can borrow up to 80% of your home’s value. Smart move if:

   2. The return on investment is higher than the mortgage interest

   3. You have a solid repayment plan (because no one wants to be house-rich but cash-poor)

Cost of Refinancing (Because Nothing in Life is Free)

Before you jump in, here’s what you might have to pay or consolidate into your refinance:

• Prepayment Penalty – If you’re breaking a mortgage mid-term be it fixed-rate or Variable, you're looking at a minimum of three months’ interest or IRD penalty which could be pretty high. It may be a good idea to wait till your current term maturity if you wish to avoid this penalty especially if you're close to maturity.

• Legal Fees – Because lawyers don’t work for free (~$1,000 to $2,500).

• Appraisal Fee – Your lender might want to check your home’s value (~$300 to $500).

• Mortgage Discharge/Registration Fees – Depending on your lender, this could be another few hundred bucks.

When Refinancing Might Be a Bad Idea

• If you underestimate the risk – If refinancing to purchase another property, then you may end up overleveraging yourself if you don't understand the risks properly

• Your Income is Unstable – Taking on more debt without a steady paycheck may not be in your BEST INTEREST.

• The Penalty Outweighs the Savings – If the cost to break your mortgage is more than the savings, it’s a no-go.

Refinancing can be a wonderful financial tool, but the math has to work. Want to see if it makes sense for you? Book a meeting, and let’s run the numbers!

Good luck, Godspeed!