• Nikole Krupka Rolof

Refinances - What You Need To Know


What exactly is a mortgage refinance? Simply put, it’s the act of paying out your current mortgage and replacing it with a new one, with different terms and a new rate.


Here are two of the top reasons why people tend to refinance.


Reason #1: To Get a Lower Mortgage Rate

One big factor driving current borrowers to refinance is to take advantage of today’s historically low rates.


Consider this: A homebuyer in November 2018 secured a 5-year fixed rate at then-average rates of around 3.50%. Compare that to 5-year fixed rates refinance rates that are now around the 2% mark, and in certain cases even lower.


The potential savings of refinancing at a lower rate can be huge. For every $100,000 worth of mortgage, the difference between a rate of 3.50% and 2% is $76 a month, or more than $7,000 over a five-year term.


A downside, however, is that fixed rates come with a prepayment penalty. In some cases, particularly for borrowers who are breaking the mortgage early into a 3- or 5-year term, the resulting penalty could be high.


That’s not to say the math won’t work in your favour. You could still come out ahead over the long term, depending on your penalty and the new mortgage rate. It’s a calculation your mortgage professional can help with, and who will also show you the potential savings.


Reason #2: To Access Home Equity

Another reason refinancing has attracted additional attention in 2020 is due to the pandemic. In the survey cited above, 10.2% of respondents said they plan to refinance “due to COVID-19” now that they’re back to work.


Most Canadian lenders stepped up and offered mortgage payment deferrals of up to six months to clients financially impacted by the lockdown. Many of those deferrals have now ended, or are about to in the coming months.


Additional Reasons to Refinance

There are other reasons why homeowners might refinance as well, including:

  • To lower monthly mortgage payments: A borrower may be able to lower their monthly payments by either securing a lower mortgage rate or by extending their loan term, which would spread their payments out over a longer time period. This can be important for those with a tight monthly budget and who are looking for additional financial breathing room.

  • To consolidate debt: Those with higher-interest debt can use a refinance to roll that debt into their mortgage at a much lower rate. This makes financial sense for anyone with sizeable credit card debt, where interest rates often run up to 20% or more.

  • To finance home improvements: Canada is in the midst of a home renovation boom as thousands of employees now working from home are seeking ways to make their living spaces more conducive to work. Refinancing can be an advantageous way to access funds for those improvements at a rate much lower interest rate than a credit card or personal line of credit.

Please check out our webpage on Refinances which reviews the costs involved as well as a calculator showing you the equity that can be accessed. Click Here.



Thanks for reading!

Nikole Krupka & TMG The Mortgage Group

Edmonton Mortgage Broker

https://www.brokeryeg.ca