When it comes to mortgages, it's common for individuals to enter into their mortgage agreements thinking that their existing interest rate and mortgage terms are set in stone. Yet, the truth is that many encounter different crossroads throughout their mortgage journey, each presenting a range of options for consideration.
One option that is constantly considered is refinancing.
Refinancing emerges as a popular choice for those seeking improved rates and more favourable terms in the current market. While it holds appeal for many, it's important to note that there are also some drawbacks associated with refinancing.
Let’s explore the pros and cons of this option!
The Pros of Refinancing Your Mortgage
Lower Interest Rates: As interest rates undergo constant fluctuations, individuals often explore refinancing to secure a more advantageous rate within the current market. This, in turn, has the potential to yield substantial long-term savings, ensuring you secure a mortgage with terms that align perfectly with your preferences.
Reduced Monthly Payments: By either extending your loan term or securing a lower interest rate, you have the ability to reduce the monthly burden of your mortgage payments. This proves particularly beneficial for individuals grappling with high monthly payments or those feeling the repercussions of the current market's elevated interest rates.
Access to Home Equity: After your home has accrued equity over an extended period, refinancing allows you to access this accumulated equity. This presents an excellent opportunity for individuals considering home upgrades through renovations, seeking additional funds for education expenses, or addressing other significant financial needs.
Flexible Terms: Apart from obtaining a reduced interest rate, refinancing provides you with the chance to modify your loan terms. Whether your goal is to shorten the repayment period, pay off your mortgage sooner than initially planned, or elongate it to lessen your monthly payments, refinancing affords you the flexibility to customize your loan terms according to your unique financial needs.
The Cons of Refinancing Your Mortgage
Closing Costs: Often overlooked by many when refinancing their mortgage, are the accompanying closing costs. These expenses encompass appraisal fees, legal fees (if opting for legal assistance), and mortgage discharge fees related to your prior mortgage. It's crucial to be aware that these costs can counterbalance the anticipated savings sought through mortgage refinancing, particularly if you have no intentions of residing in your home for an extended duration.
Extended Interest: If your refinancing term involves lengthening your loan term to decrease monthly payments, it's essential to recognize that this adjustment may lead to higher interest payments over the entire loan duration. Prior to deciding to refinance your mortgage, it's beneficial to thoughtfully weigh the trade-off between immediate short-term financial relief and the potential long-term consequences of an extended loan duration.
Qualification Challenges: Should there be alterations in your financial situation, like job loss or increased debt, you might find yourself ineligible for the intended refinance you are looking for.
Let’s Talk Refinancing!
In the Canadian real estate landscape, the decision to refinance your mortgage is a highly favourable one, requiring careful consideration of your financial goals and circumstances.
As you’re getting ready to refinance, get in touch with our team to assess your long-term financial goals to ensure that you receive the new rate and terms you are looking for. Together, we will help you make an informed decision that aligns with your unique financial situation with the current market’s landscape in mind.