We all want to save money, right? But with mortgage payments, car loans, post-secondary education, and RRSPs to contribute to, it often seems like there isn’t much money left at the end of the month.
Have you ever thought of refinancing your mortgage to increase your monthly cash flow? Many people don’t think of refinancing as a cost-savings method but hear us out.
What is Refinancing?
We’re not sure when refinancing got such a bad reputation. You’ve probably heard the phrase before and immediately thought of your parents scoffing at the idea.
Simply put, refinancing means renegotiating your current mortgage agreement to lower your payments or borrowing costs. Refinancing your mortgage allows you to access the equity in your home so you can use the extra cash for a variety of reasons, including:
Consolidating high-interest debt, like credit cards or student loans;
Paying for post-secondary education;
Paying for home renovations;
Buying a revenue property to rent out and create new wealth, or;
Buying a vacation property.
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly.
When Is the Right Time To Refinance My Mortgage?
The perfect time to refinance your mortgage all depends on you. Right now, in May 2021, interest rates are in a good place that refinancing could be a great idea to increase your monthly cash flow.
But, there are a few times that refinancing your mortgage isn’t the best idea:
If you’re not planning on staying in your home for a long time, refinancing your mortgage probably doesn’t make sense. Why? Refinancing costs a percentage of the principal of your loan i.e. the cost to break your mortgage.
Typically, fixed-rate mortgages have higher prepayment penalties. In most cases, this penalty is the higher of either an interest rate differential (what rate you’re paying vs the current rate) or three months interest.
Whatever is higher, you’ll have to pay out of pocket to your lender. If you’re just starting your fixed-rate term, it’s probably too expensive to refinance, but if you’re closer to the end of your term, the math could make sense.
If you’re about halfway through your current mortgage, for example, 15 years in a 25-year mortgage, and you refinance for another 25 years, you’ll likely end up paying more in the long run. You may have reached the point in your current mortgage where you have paid off most of the interest and you’ve started making a dent in the principal.
If you refinance for another long-term mortgage, you will be starting from scratch. If possible, you’ll want to refinance your mortgage for a shorter amortization so you actually save money.
How do I Refinance My Mortgage?
Remember all that paperwork you had to do when you got your first mortgage? Yep, we’ll most likely need to do that again. We know, it’s not the most glamorous thing but if there’s extra cash at the end of it, it’s totally worth it.
Our awesome team of brokers will help you with that and work with you to get a great mortgage—mortgages are more than just interest rates you know.
We’ll make sure the savings outweigh the cost prepayment penalties (if any), and we’ll discuss all of the risks and benefits of refinancing your mortgage.