The majority of homeowners attempting to refinance a mortgage are looking to accomplish one among the following:
Consolidate Debt (credit cards/loans),
Taking advantage of lower interest rates,
or Access funds for other important projects,
such as Home renovations investment/rental property,
Buying an investment/rental property,
Planning for your children’s future education, or
Dreaming about great vacation.
Put your home equity to work for you…
You have worked hard to build the equity in your home and now might be the time to get the equity, working for you. You may qualify to up to 95%* of the value of your home (Normally 80%). Home equity may be one of the biggest assets you may own.
To take advantage of low-interest rates
Do not be scared of the penalties; sometimes the penalties are not much. Breaking your term for a lower interest rate may save you money over time, this depends on the penalty and the size of your outstanding mortgage. If you hold a variable rate mortgage, then expect to pay a penalty of three months interest, and if you hold a fixed-rate mortgage, then you will pay the greater of three months interest or interest rate differential penalty (IRD).
Let's look at an example with a home buyer Bob. Bob is locked into a 5-year fixed mortgage rate on February 1st, 2015 with ING. It is now March 1st, 2017, Bob’s mortgage balance is $300,000 and he is considering refinancing as the interest he has is 5.49%. His term is remaining for another 35 months. The lender is currently offering a rate of 3.89%
3 Month Interest penalty formula:
Penalty = outstanding mortgage x (rate/12) x 3 months
Penalty = 300,000 x (5.49%/12) x 3 months
Penalty = 1372.50 x 3 months
Penalty = $4117.50
Penalty = (rate differential / 12 months) x (number of months remaining in term) x (outstanding mortgage)
Penalty = ((5.89%-3.89%)/12 months) x (35 months) x 300,000
Penalty = (1.6%)/12) x 35 x 300,000
Penalty = $14,000
To access equity (cash) in your home
Through refinancing, you can normally get 80% of your house's value less any outstanding mortgages. You can use this extra money for investment opportunities, home renovations, or your children’s education. There are several ways to access this equity including breaking your mortgage, taking on a home equity line of credit, or blending and extending your mortgage to your current lender.
To consolidate debt
If you have enough equity in your home, you will be able to pay-out high-interest debt through a refinance. For example, if you have a number of outstanding debts, such as a car loan, a line of credit, or credit card bills, you may be able to consolidate all of the debt through the variety of refinancing options available.
Methods of refinancing your mortgage
Break your existing mortgage contract early
You can consider breaking your mortgage early if you want to obtain a lower interest rate or access equity from your home. In that case, you can get rid of your existing mortgage and take on a brand new one with any lender. Raptor Financial Group can get you offers with up to 95% Loan To Value.
Add a home equity line of credit:
A home equity line of credit gives you access to the equity in your home at your own discretion. You are responsible for interest-only payments each month on the outstanding balance.
Blend and extend your existing mortgage:
Your current mortgage lender might offer you a ‘blended rate’; essentially, a ‘blend’ of your current mortgage rate plus any additional money you borrow at current market rates. Blended rates are almost always higher than the most competitive mortgage rates on the market, so make sure you compare the blended rate against the savings if you break your mortgage.