May 27, 2021

When Should You Refinance Your Mortgage?

“Should I refinance my mortgage?” is a question that most homeowners will ask at some point or another. Refinancing is a powerful tool for unlocking extra cash and renegotiating the terms of your mortgage to make repayment easier, and it can be one of the most responsible ways to borrow money.

But this question is often followed up with further questions, like “when can I refinance my mortgage?” or “what’s the best way to refinance a mortgage?”

The process by which you refinance a home mortgage loan is not a complex one (refinancing through a mortgage broker like Burke Financial can be done quickly and easily online), but in order to get the most out of refinancing, homeowners need to understand how refinancing works and what it is good for.

To that end, this article will explore some of common questions people have about mortgage refinancing in Toronto such as:

  • How can I refinance my mortgage?
  • When can I refinance my mortgage?
  • What are the benefits of mortgage refinancing?

Figuring out whether refinancing makes sense for you will, of course, depend on your own financial circumstances, but understanding how refinancing works and who can benefit from it will help you manage your debt load and make the most of your assets.

How Does Mortgage Refinancing Work?

In order to understand the benefits of mortgage refinancing, it is first necessary to understand what refinancing is and how it works.

The simplest mortgage refinancing definition is that refinancing is the process by which you replace an existing mortgage loan with a new one. This new mortgage may be with the original lender or with a new lender.

In Canada, mortgage refinancing is often built into the structure of the mortgage itself. Most mortgages are amortized over twenty-five years, broken up into five terms of five years each with the contract being renewed at the end of each of these terms based on changes in interest rates.

It is possible, however, to refinance your mortgage at any time through a mortgage broker (though doing so may incur a penalty, which will need to be factored in when asking the question “when should I refinance my mortgage”).

Should you decide to refinance your mortgage, you will have the option of simply taking out a new loan at current interest rates (paying off the old loan plus any fees, and continuing to make your monthly payments to the new lender), or of extending the mortgage to receive a lump sum cash payment based on your existing equity.

This aspect of refinancing is similar to home equity loans in Ontario — the main difference being that a home equity loan is a second loan on top of an existing mortgage, and refinancing is a completely new loan.

While there are many ways to refinance a mortgage, it is best to work with an experienced mortgage broker who will be able to provide you with a variety of options. Unlike banks, mortgage brokers don’t sell their own financial products, but connect you with a wide range of potential lenders so you can shop around for the best rate.

burke financial refinance mortgage

Credit: mohamed_hassan Via Pixabay

Why Should I Refinance My Mortgage?

So, now that you understand how mortgage refinancing works, your next question is probably about whether you should refinance your mortgage now or simply wait for your term to end.

Refinancing in the middle of a term can be a good idea if any one of the following conditions currently applies to your financial situation:

  • You need to consolidate debt
  • You need money to invest in renovations or repairs that will improve the overall value of your home
  • You can get a lower interest rate that will save you money in the long run
  • You need to change the structure of your monthly payments

All of these situations are ultimately about managing debt. For example, taking out a personal loan to cover an expensive maintenance project like re-roofing can mean signing on for a high interest rate, especially if you have a credit score below 650. Replacing your existing mortgage with a longer-term one and cashing out on the equity you have built up will save you money over time.

The same goes for debt consolidation. If you’re paying 19% interest on credit card debt, you’re wasting a huge amount of money every year simply servicing the loan. Adding a few years to your mortgage can give you the funds you need to pay those debts now and start repairing your credit.

Who Benefits from Mortgage Refinancing?

As noted, if you’re asking the question “should I refinance my mortgage?” that’s probably either because you need a lump sum of cash in the short term or you feel you’re paying too much in interest on your existing loan and believe that in the current economic climate you can get a better deal.

The people who benefit most from mortgage refinancing are people who are trying to improve their financial position and manage their debt responsibly, and don’t want to take on any more high-interest loans.

If this is the situation you are in, you should get in touch with a Toronto mortgage broker to explore your refinancing options and find out what kinds of refinancing rates are available to you today.

For many Canadians, 2020 has been a turbulent year. Many have found themselves furloughed or unemployed for long stretches of time, and the economic crash caused by the pandemic has left many people with unexpected budgetary shortfalls and soaring debt.

Whatever your financial needs, refinancing your home can be one of the most responsible ways to secure extra cash, consolidate debt, or take advantage of low interest rates. If you’ve decided that the answer to the question “should I refinance my mortgage?” is “yes!” then get started today with Burke Financial.


Contact Us