Renewing Your Mortgage:
Shortly before your mortgage comes up for renewal you will receive a 'renewal offer' in the mail from your bank or lending institution. The renewal offer will have with a list of 'term' and 'rate' selections. These rate offerings will likely be much higher than discount rates available at that time.
Have you ever wondered why banks still quote 'posted' interest rates that are much higher than other available rates? Approximately 70% of the people who receive a renewal offer from their bank will simply sign and return it, with no questions asked. The bank is a known and trusted entity and customers believe they are being offered a 'good rate'. Most don't know that these interest rates are negotiable - much like buying a car. Banks understand that 'loyal' customers are unlikely to undertake the unpleasant task of 'shopping' for a better deal on their own. They make huge profits on renewal sign-backs that are at, or near, posted rates.
Renewal offers are usually sent out just a few weeks before a mortgage comes up for renewal. This gives most people, busy with daily life, little time to shop around. It's so easy just to sign the offer, and send it back. Some people will call their bank and ask for a better deal. In most cases they will get a better rate, but not likely the lowest rate available in the marketplace.
The best way to approach a renewal is to call a mortgage broker at least 4 months before your mortgage renews. Many financial institutions offer rate guarantees for up to 120 days. A broker will shop the market for you and 'lock in' the best rate they can find. This protects you if rates go up before your renewal date. If rates go down, you will receive the lowest rate in effect over the 120 day period - so you can't lose.
Refinancing involves breaking your existing mortgage contract and replacing it with a new one, usually to borrow additional money against the 'equity' in your home. People will sometimes refinance to change their existing mortgage arrangement without increasing the balance if interest rates are considerably lower and it makes economic sense to do so.
Breaking a mortgage contract usually involves paying a penalty, but you can sometimes avoid this by staying with the same lender. Most lenders will let you 'increase and blend' your current mortgage without paying a penalty. This involves blending the remaining balance at the contract rate with the additional amount at the current rate. This is sometimes, but not always, the cheapest way to go.
You can refinance up to 80% of the value of your home. If the amount is over 80% you are required to pay mortgage insurance.
People refinance for many reasons. Here are some of them:
If monthly payments are bogging you down, or if you are paying high interest rates on a number of different accounts, it may make sense to refinance to pay off high interest debt and lower your monthly payments.
Finance a Renovation:
If you are planning a major renovation you might consider increasing your mortgage, especially at today's low interest rates. This may be less expensive than using a loan or unsecured line of credit to finance the project.
To Purchase a Cottage or Vacation Home:
Many people borrow against the equity in their home to purchase a vacation home or cottage. Cottages and vacation properties can be purchased at up to 95% of value depending on certain property characteristics. You can sometimes save money by refinancing your current home for the down payment and purchasing using the same lender.
Buying an Investment Property:
You can also refinance to access funds for a rental or investment property purchase. You will need a 20% down payment for this type of purchase unless one unit is owner occupied. The interest you pay on money borrowed to purchase or maintain an investment property is tax deductible.
To Purchase Other Investments:
Borrowing to invest can give rise to tax savings in the form of interest deductions. You should speak to a qualified financial advisor about the risks and benefits of this strategy.
A Second Home Purchase: Parents with children in college or university can tap into their equity to purchase a second home for their children to live in while attending school. Lenders and mortgage insurers have simplified this type of financing with the introduction of 'family plan' mortgages.
Any significant purchase or expenditure can be financed using the equity in your home. Contact a Mortgage Professional to see if it makes good economic sense to do so.
For more information on renewing or refinancing your mortgage please contact
- Janet MacDonald at 613-561-5047 or
- Jeff Dillon at 613-453-3663 or