When you get a mortgage to purchase a home, a lender provides you with the funds and a contract to ensure that you will make regular payments. But if you want to pay off your home more quickly or access more money, you may consider mortgage refinancing as a solution. You may be hesitant to do this as you may have little to no knowledge about mortgage refinancing. This is why we thought it would be useful to put together a brief discussion on this subject. If this is something that you’re interested in learning more about, read on as we break down everything you need to know about refinancing your mortgage in Canada.

What Is Mortgage Refinancing?

Getting a new mortgage loan to pay off an existing mortgage loan is a financial strategy where you pay your current mortgage loan in full by securing a new mortgage loan. This new loan comes with its own terms and conditions, including a new interest rate.

When you refinance your mortgage, you can also make it bigger. This is possible because the loan that you receive is based on your home’s appraised value. If your home is worth $500,000, for example, you can borrow up to $400,000. Your new loan might pay off your original mortgage, which was $350,000; you would then have a lump sum of cash of $50,000.

When Is the Best Time to Refinance Your Mortgage?

The best time to refinance a mortgage is when you have a fixed-rate mortgage that is about to end, because a prepayment penalty will apply if you refinance before the term is up. The penalty is usually not too large on a variable-rate mortgage (typically three months interest), but it can be quite high on a fixed-rate mortgage. If you wait until the end of the term to refinance, you can avoid all prepayment fees. If you want to refinance your mortgage in the middle of your term, you’ll have to ask yourself whether the costs are outweighed by the benefits.

How Do You Refinance a Mortgage?

If you decide to refinance your mortgage, fill out the application to request the lender evaluate your eligibility. Be sure to gather lists of documents the lender will need to assess you, such as proof of income and tax documents. Ask a mortgage broker to help you collect these documents.

If you get approved for the mortgage, don’t do anything until you’ve read the terms and conditions carefully. Make sure you look out for details related to costs, payments and interest rates. If there’s anything you don’t understand, ask for clarification from the person approving your loan. A mortgage broker may be able to help here. After all, if the broker can get you a percentage point off your interest rate, that could help you afford the closing costs. 

Conclusion

We hope this article proves to be useful when it comes to helping you gain a better understanding of how mortgage refinancing works. While it may seem complicated at first, it can be rather simple as long as you know what you’re doing. Be sure to keep everything you’ve learned here in mind so that you can make the most informed decisions possible.

Mills Financial Group houses the best mortgage brokers in Canada. Our goal is to help our clients manage their loans and possibly guide them in refinancing their mortgages when the time is right. We also offer 48-hour equity loans for clients needing instant cash right away. Learn to finance your home today by speaking to our esteemed mortgage brokers.