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Is now a good time to refinance your mortgage?

The big news in the mortgage world these days has been the steady increase in fixed mortgage rates.

Since the start of the year, fixed rates have risen approximately one percentage point, or 100 basis points.

As a general guide, for every 0.25% increase in mortgage rates, your monthly payment will increase $12-$13 per $100,000 of debt.

For now, these increases are mostly impacting potential new homebuyers that haven’t found a home yet. But as time goes on, a growing number of fixed-rate mortgage holders will be reaching the end of their term and could face mortgage renewals at higher rates.

Nearly 4-in-10 mortgage holders expect to renew their mortgage in the next two years, while 57% expect to renew in the next three years, according to data from Mortgage Professionals Canada.

Many borrowers currently locked into a 5-year fixed rate mortgage could see renewal rates at least one percentage point higher than the rate they locked into five years ago.

If you’re one of these borrowers and are worried about higher monthly payments, a refinance could be your answer.

When you refinance your mortgage, you’re essentially taking out a brand-new mortgage, complete with a new rate, a new term and possibly a new amortization period. Plus, you may be able to take out some additional funds for renovations, investments, etc.

Getting a refinance can potentially help you lower your monthly payments too.

For one, refinancing ahead of your renewal means you can lock into today’s fixed rates before any other potential rate increases. Alternatively, you can switch to a variable-rate mortgage. Most variable rates are currently much lower than comparable fixed rates. Even though the Bank of Canada is expected to hike rates throughout this year and next, it would take a number of quarter-point rate increases before variable rates cost more than a fixed.

Another option is to extend your amortization, which can lower your monthly payments. This may be a good solution for those who want to preserve their monthly free cash flow. It may also allow you to take out some equity from your home, if needed.

The downside is that this would extend the number of years before you become mortgage-free, although increasing your prepayments in future years could counteract this.

If you are considering a mortgage refinance, we can help you explore the available options and navigate some of the potential hurdles, such as penalties or qualification criteria.

Let’s talk about your unique situation and the options available to you. Contact us today!

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