Should you refinance early in order to benefit from low rates?
Are you considering refinancing your mortgage? Early refinancing has become a bit of a trend; not surprisingly though, everybody is aiming to save money where they can. Securing a new loan with far better interest rates for your home might mean saving money on monthly low mortgage rate payments, or utilizing the extra money on other ventures like remodeling or making investments.
Does Everyone Profit from Refinancing?
The decision to break an existing mortgage should not be taken lightly. Despite what the advantages appear to be on the surface, there are penalties associated with refinancing; penalties that could potentially leave less change in your pocket than you had anticipated.
34% of those who recently renewed or renegotiated their best Canadian mortgage rate did so prior to their term expiring. The average time to pay off a mortgage is 7.4 years less than the original amortization. (Source: CAAMP).
Do Your Research and Speak with a Low Mortgage Rate Specialist
If now is not the time to refinance, bear in mind that mortgage brokers can review your best mortgage rate at any time, so it is always possible to do something about your mortgage when you are prepared. Request your broker to conduct a mortgage analysis to find out if renewing your loan at a lower rate is worth it.
Determine What Your Penalties Are
Until recently, the main penalty you would likely ever need to pay was 3 month’s interest. If you have a fixed rate, financial institutions now also take a look at the Interest Rate Differential (IRD) and will charge the greater of the two.
Find out If It’s Worth It
Penalties can surely get expensive, however that does not suggest it is not worth exploring. In order to keep your company, financial institutions can take 15 % off the balance of your mortgage to calculate the penalty, as opposed to using the full amount, leading to a lower overall penalty fee.
In many cases, banks will provide a blended rate for the remainder of your mortgage period. Your penalty will depend on your lender and how well you can negotiate.
It merges your present mortgage at its existing rate with any additional money you borrow at the current rates. Doing this enables you to benefit from existing lower rates without needing to pay a penalty. Nevertheless, some banks could use the posted rate, as opposed to the lower rates to determine your new blended rate.
What You Will Need to Qualify
In order to qualify for refinancing you will need to have at least 10 % equity in your house. Both you and your mortgage advisor are able to find out if long term savings outweigh the penalty.
Are you ready to take the leap into homeownership?
Renting is a wonderful first step to living on your own. Given that it lacks long term commitment many rental agreements generally only last one year. Renting is an affordable and accommodating option for most people.
You’re essentially paying off someone else’s Canadian mortgage rate, as opposed to investing in your future. In addition to this, your rental agreement will have its own set of rules that you will be required to follow during your tenancy.
The current best mortgage rates enable you to borrow money cheaply right away. Furthermore, owning a home will help to provide you with a sense of security and comfort. You have freedom to update it as you please and improve on your investment.
You will need to be personally and financially prepared for homeownership. Expect your stress levels to increase given your monthly budget.
Renting provides low initial costs. Your costs are a predictable expense and thus easy to budget around.
Saving up for a down payment requires substantially more money. Also, there are hidden expenses that turn up unexpectedly. Finally, if you secure a low mortgage rate today, you will need to keep in mind that your payments may go up when it comes time to refinance.
Renting can be considered an investment if the money that you’re saving is going towards a future down payment. Buying a home can be considered a good investment only if the property value increases. It could also provide a possible source of income if you choose to rent out a room or convert the basement into an income suite.
Buying a home is a big investment. Make sure you’re ready to make the commitment. Contact a mortgage broker to learn more about the pros and cons of homeownership.
What’s the difference?
There are several stages of the Canadian mortgage rate approval procedure when you apply for a mortgage. It is essential to understand what they are and what they really mean.
What is Pre-Qualification?
This is the initial step of the low mortgage rate approval process wherein your mortgage broker takes a look at your overall earnings and financial obligation. The broker will determine your affordability by taking a look at your debt ratios (Gross Debt Service GDS and Total Debt Service (TDS)).
There are going to be a variety of conditions that you will need to meet in the pre-qualification before it is fully approved.
What is Pre-Approval?
Once accomplished, the mortgage broker will send your application to a lender who confirms your information with a certificate of approval. This generally includes a Canadian mortgage rate guarantee, which is typically valid for 60 and 120 days. You must comply with all the terms and conditions prior to approval.
What is Approval?
You have been fully approved for the mortgage at the best mortgage rate detailed in the agreement.
Advantages of a Mortgage Pre-Approval
A mortgage pre-approval enables you to lock in an interest rate. It offers additional security in understanding that you satisfy the initial financing requirements. It also enables any seller to understand that you are a serious buyer.
Most importantly, you understand clearly what you are able to purchase when you are buying a home.
Documents Required for a Pre-Approval
- Personal identification
- Income information
- Bank accounts
- Loans and other financial obligations
- Proof of financial assets
- Confirmation of the deposit and funds to pay for the closing cost
Each and every house hunt begins with a mortgage pre-approval. Start your quick online application today.
Open or Closed? Do you know which option is right for you?
Closed mortgages provide lower interest rates than open mortgages. Nonetheless, open mortgages include a smaller amount of fees.
What is a Closed Mortgage?
Closed mortgages cannot be prepaid, renegotiated or refinanced prior to maturation without paying a penalty. The majority of closed mortgages do provide a little flexibility by allowing you to pay back the principle through lump sum payments, or by enhancing your monthly payment amount for your best mortgage rate.
When to Consider a Closed Mortgage
Given that closed mortgages have considerably lower interest rates, they are more appealing to the average homebuyer.
When NOT to Consider a Closed Mortgage
If you believe that you will need to break your mortgage early.
What is an Open Mortgage?
Open low mortgage rate terms vary from 6 months to 1 year for fixed rates, and 3 to 5 years for variable rates. They may be settled prior to maturation without penalty.
When to Consider an Open Mortgage
If you are anticipating to get a large amount of money, an open mortgage will offer you the flexibility to settle your loan sooner.
The Beauty of Prepayments with Closed Mortgages
The majority of closed mortgages allow prepayment options, consisting of: lump sum payments as much as a portion of your annual principal, or enhancing your regular monthly Canadian mortgage rate payment.
How Much Does a Closed Mortgage Penalty Cost?
If you do choose to break your closed mortgage prior to completion of your term, you could possibly pay a penalty. The penalty you pay is the higher of either:
- 3 months of interest
- Or the Interest Rate Differential (IRD): the difference between today’s interest rate and the rate you currently pay