Is it time to refinance your mortgage?
With the average conventional five-year fixed-rate mortgage rate approaching six percent, homebuyers who might have purchased a home at rock-bottom rates recently might not want to refinance their mortgage. Others, especially those who are on a variable-rate mortgage, may need to refinance their mortgage.
Whatever the reason may be, it is important to understand the steps involved with refinancing your mortgages.
Let’s take a deeper dive:
Refinancing Your Mortgage in Canada
Here are six steps to refinancing your mortgage in Canada:
Evaluate Your Current Mortgage
Here are four questions to answer as you assess your current mortgage:
- What are your current mortgage terms?
- What is your mortgage rate?
- What is the remaining balance?
- What are the penalties or fees?
Understanding why you want to refinance is critical during this process. You need to identify the purpose, whether to access equity, solidify your monthly payments or consolidate your debt. It is not something to take lightly.
Check Your Credit Score
Your credit score plays a crucial role in getting approved for a new mortgage with favourable terms.
As a result, it is vital to access and obtain a copy of your credit report and score from a reputable credit bureau. By doing this, you can ensure that the data are accurate, and you can identify any areas for improvement if required.
Research Lenders and Mortgage Rates
When you are considering refinancing your mortgage, should you stick with your current lender or find somebody else? This depends on what your research shows. Therefore, comparing offerings from other banks, credit unions, and mortgage brokers is imperative to locate the best deal that matches your objectives.
After this is achieved, you need to calculate the costs and savings:
- Estimate the possible savings and costs associated with refinancing.
- Consider factors such as closing costs, appraisal fees, legal fees, and prepayment penalties for your existing mortgage.
- Compare these costs to the long-term savings from the new mortgage to ensure the refinancing makes financial sense.
Once you have selected a mortgage lender, be sure to apply for pre-approval. Doing this lets you know how much you can borrow and streamlines the borrowing process. A pre-approval application typically involves extending your personal and financial information, income verification, employment information, credit reports, and other associated documents.
Yes, the refinancing process is a tad difficult. The first is the underwriting endeavour, which includes the lender reviewing your application, evaluating the residential property’s value, and assessing your creditworthiness. The lender could request additional documentation for clarification purposes. The second will be an appraisal of your property that might be needed to determine the present market value, a vital step to determine the loan-to-value (LTV) ratio. The third is that you will need to hire an attorney or notary to manage the legal components of the refinancing process, as this professional will review the agreement, prepare the documents, and arrange the mortgage closing.
The Final Steps
The three final aspects of mortgage refinancing will be like this:
Mortgage Closing: You will need to sign the paperwork, like the new mortgage agreement, either at a lawyer’s office or through a remote online notarization platform. Funds Disbursement: The new mortgage funds will be allocated that will be used to cover closing costs, offer funds to access equity, or pay off the current mortgage.
Begin Repayment: You will now start to make payments on your new mortgage using the updated terms and conditions in the new mortgage agreement.
The Growth of Mortgage Refinancing
Considering that interest rates are at their highest levels in over two decades, it might be befuddling why anyone would want to refinance in today’s rising-rate climate. However, research has found that homeowners will do so for debt consolidation reasons. A recent Angus Reid Institute study found that the percentage of mortgage holders struggling with their payments rose to 45 per cent since 2022. At the same time, growing credit card and loan debt was the main source of financial stress for mortgage holders.
“Many homeowners will have outstanding debt, whether it be on HELOCs, LOCs, credit cards, or loans,” said Victor Tran, a RATESDOTCA mortgage expert, in a statement. “Rising interest rates will push up the amount of interest they have to pay to service the debt, and it can be more affordable to refinance a mortgage and roll all of the debt into one payment instead of several.”
Is it time to refinance?