I think we can safely say that 2020 has been a strange year. A year of lockdowns due to a pandemic, financial support from the government, and the lowest interest rates in recent history. This has led to a rise in the number of homeowners who are considering refinancing their mortgage. According to a recent poll, approximately 20% of Canadian homeowners say they plan to refinance their mortgage in the next 12 months.
Like all financial decisions, it’s important to look at the bigger picture, which includes reviewing your goals.
First Things First -- What’s a refinance?
A refinance alters the terms and conditions of your mortgage – it’s essentially a new mortgage. Specifically, you are increasing the amount of your mortgage, whether to pay off consumer debt, finance a renovation, invest, or to get a lower rate.
Here are a few reasons to opt for a refinance:
Decrease your overall monthly debt payments by using the equity in your home to pay off those high-interest credit cards or unsecured loans.
Lower monthly mortgage payments. A borrower may be able to lower their monthly payments by either securing a lower mortgage rate or by extending their loan term, which would spread their payments out over a longer time period. This can be important for those with a tight monthly budget and who are looking for additional financial breathing room.
You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
You could also take out some of the equity for investment purposes -- an option that many homeowners consider this time of year as they look ahead to the new year
And there are more uses for your equity such as helping putting your kids through school.
You can also finance a renovation or home improvements.
Repayment – What You Need To Know
Borrowing against your property is not free money – it’s a mortgage loan -- and like any other loan, it has to be repaid.
Speak to a Professional to Understand Your Options
There are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Let’s talk about your unique situation and the options available to you.