There must be a reason why you would like to refinance your mortgage. Kuljit Chhaitra, BC mortgage broker in South Surrey says “Ultimately, every person will look to save money when doing a mortgage refinance” Here are some reasons:
Access your home equity– Maybe there is a renovation you would like to do or may have other plans to use your money somewhere else. This is one example why you would utilize the refinance option. If there are savings you have set aside and do not want to use them, by refinancing your home you could access your equity to for a greater plan you may have and still have the security of your savings. For example, you may want to borrow for your future planning that you may want to invest in RRSP while you still have access to those savings. Others may not have those savings, but can take advantage of this because it is still saving them money rather than accessing another loan at a higher rate such as an unsecured line of credit or HELOC. For example, you want to go on vacation or purchase another property.
Lower your mortgage rate– Your current mortgage may be at a higher rate. However, the current rates are much lower. What will this do for you if you refinance your mortgage? You will save money by either decreasing your payment; thus, paying less interest and more towards your principal balance. In addition, your monthly payment will be less. For example, your current mortgage may have an interest rate of 3.99% on a $500,000 mortgage with 30yr amortization. The payment would be approx. $2375. The market rate may be 1.99% and with a mortgage refinance your payment would decrease by at least $500 month. Secondly, you can choose to decrease your amortization by keeping the same monthly payment and pay off your home faster! For example, you may be on a 25yr amortization and by refinancing you may be able to get on a 20yr amortization to pay off your home quicker. Utilizing a bc mortgage calculator is great way of looking at the different options.
Consolidate debt– This is very common why many refinance their mortgage. The goal here is to pay off any debt such as debt from credit cards, auto loan and personal line of credit that is at a much higher interest rate that never gets paid down to one combined payment at a lower interest rate. Then you do not have to make multiple payments remembering what to pay and paying only one payment that eventually will get paid off. This will help improve your credit score as you won’t carry any high balance to limit ratio balances. This will save you money. For example, you may have $20,000 on credit cards with 20% interest on it. By consolidating the debt and adding it to your mortgage maybe that could be on a 1.99%, you will no longer have to keep paying that credit card where the payment is likely going all to interest. With the increase in the mortgage amount, the payment may not increase much, but will be paying down your principle balance.