Home Loan Refinancing: Exchanging Debt for Debt

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For the past 25+ years, Mortgage Genie, a Home Loan and Mortgage finance specialist, has been helping and advising its clients in Ontario, Canada, with a host of complex home financing challenges.

Home Loan Refinancing 101

If you are looking for ways to reduce your home mortgage costs, then perhaps you should look at doing a mortgage refinance. At Mortgage Genie, we’ve literally helped Canadian’s save hundreds of thousands of dollars by opting for smart refinancing choices.

So what exactly is a mortgage refinance?

Well, simply put, it is a process whereby your older mortgage is replaced with a newer one with more favourable terms. Refinancing results in the current loan balance being paid off, and a new loan is created by rolling that balance (plus any additional amount lent) into a new mortgage contract.

Where’s the savings?

We knew you’d ask that…that’s why we came prepared with the answers!

Interest rate savings: Firstly, most often the interest rate on a refinanced mortgage is much more favourable than the one you’re paying on your existing loan. What that means is that (for example), instead of paying 5% on $200,000, you could end up paying 3.5% on $250,000.

Without going into the complexities of monthly installments, number of payments a year etc., right off the bat a 1.5% reduction in interest rate could save you $1,250 – even on a higher loan amount. How’s that for savings? But there’s more!

Savings from flexible repayment: Then, with refinancing, you can often shop around for terms that allow you flexibility in repayment. For instance, if you’re existing mortgage didn’t allow you to make additional “privileged” payments; chances are that you’ll never pay off that loan till it matures.

Well connected mortgage brokers can put you in touch with lenders that offer exceptional repayment privileges, such as:

  • Additional lump sum payments each year (in case you got that bonus and wanted to use it to reduce your mortgage further!)
  • Annual increases to those lump sum payment privileges
  • Accelerated payment frequencies
  • Changing your payment dates annually

The end result is that you could end up repaying your loan quicker than your original term allowed, thereby saving you plenty of money for other more important uses.

Savings from use of additional funds: Your refinanced mortgage loan is usually larger than the balance of your existing loan (e.g.: $250,000 versus $200,000). And that means you can then use that additional amount ($50,000) for other things, like:

  • Paying off that high-interest credit card debt – that may currently charge you 12% or 15% interest. That by itself could save you a chunk of money!
  • Using it for home renovations, which means you don’t have to shop around for another loan elsewhere, or go through administrative hassles of securing Line of Credit financing for those renos. And once those renovations are done, you’re home will appreciate in value. So that ought to count for something!

The end result is that you could end up repaying your loan quicker than your original term allowed, thereby saving you plenty of money in interest payments, which you might to other more important uses.

Making Refinancing work for you

  • You have a current mortgage whose interest rate is much lower than what you can get from refinancing
  • You are satisfied with your existing lender, and you have a long time left before your term expires
  • The cost of breaking the existing contract, and entering into a new one (closing costs) make refinancing less cost effective

But if you are interested in refinancing, then here’s how you could make it work for you:

  • Try to shorten your existing mortgage term when refinancing
  • Improve your credit score before applying for refinancing. Aim for scores of 720+
  • Don’t settle for the first available quote – shop around and speak with more than one lender
  • Negotiate lower interest rates and flexible repayment terms
  • Pay off your mortgage as quickly as you can

While the average Canadian is pretty savvy when it comes to their finances, the average home loan borrower doesn’t have the time to go through the process of shopping and negotiating refinancing terms with multiple lenders. That’s where professionals can help.

Get in touch with a professional mortgage broker at Mortgage Genie and get them to use their vast network of lender contacts to give you multiple competitive bids. That’s the best way to make refinancing work for you!

Call us and receive a free home evaluation and complimentary home cleaning with your refinance.