If you’ve been following the real estate market lately, you are likely familiar with recent trends in the mortgage industry. Rates are going up, and many homeowners are wondering what their next move should be. Despite rate increases, it may be beneficial to refinance this month.
Why would it be a good time to refinance? Homeowners who have built up home equity, and are looking to access that equity, can often find their solution in a refinance. Plus, it can be a good way to deal with debt, or make other adjustments. Here’s what you should know about refinancing right now.
Update on interest rates
Since the beginning of the year, we have seen two increases to the overnight rate from the Bank of Canada. The first increase in March brought the overnight rate from 0.25 per cent to 0.50 per cent, and in April, it increased once again to one per cent. If you have a variable rate mortgage, you know this means your monthly payments have increased twice, as the prime rate (which impacts variable rates) rises alongside the overnight rate. The rate hikes have made many people think refinancing is no longer a good idea, but it can still benefit some homeowners depending on their situation. Remember that rate increases are occurring from basically as low as they can be, so even with raises we’re still experiencing low rates. Rates are low enough to still take advantage of home equity through a refinance, plus it depends on your unique situation as well. Your mortgage needs may call for a refinance. Here are some factors to consider when debating if a refinance could be good for you.
Income and employment
First, to refinance you must be sure you have a stable income and employment to make this move. When you were approved for your mortgage, you had to provide proof of income and credit score to your lender to show you could support it. Now that you’re seeking new terms in some regard, lenders are going to want to see that same proof again. Even if you’re refinancing with the same lender, you will need to show your financial situation is still stable. If you have lost your job or have reduced your income since being approved, this could impact your refinancing opportunities. Think about whether your finances have changed, and speak to a broker about if it will affect your refinance.
Plans for your home
If you’re considering a refinance this month, you should make sure you have long-term plans for your home. This means you are ideally planning to stay in your home for a long time to come. Refinancing does involve breaking your current mortgage terms and, depending on the type of mortgage you have, there may be fees if you break the contract early. For example, if you plan to sell your home within one year, it likely wouldn’t be worth refinancing now. Make sure your refinance is worthwhile!
If you have specific plans for your home, this is where refinancing can be handy. For example, if you want to renovate your home, this is a pricey investment and it wouldn’t hurt to have access to your home equity to help support this expense. Refinancing can help you unlock that equity, providing you with the cash flow to pay for renovations or other major costs.
Readjusting your terms
Everything changes throughout our lives, including our mortgage needs. The terms you agreed to a few years ago may not suit you now, but that doesn’t mean you need to stick with them until the end of your term. Taking on a refinance this month gives you the chance to readjust terms that no longer fit you. Maybe you want to shorten your amortization period and pay off your mortgage sooner to avoid extra interest charges over time. You may want to negotiate prepayment privileges, switch from a fixed to a variable rate, or see if you can secure a lower rate. However you feel your mortgage needs have evolved, a refinance can be a good way to address those needs.
Consolidating debt
Having debt as a homeowner can be scary, but a refinance can help you clear out your debt by using your home to your advantage. You don’t want to default on your mortgage payments, so it can feel overwhelming to be responsible for such a big asset. If you choose to refinance this month, you can consolidate your debt. This means all your debt becomes one lump sum payment, often with a lower interest rate. Instead of several payments with various rates, you just have to handle one payment and one rate. This often opens up some extra cash flow, which you can use to address your debt.
A refinance this month could certainly be a great option for you, but it all depends on your circumstances! If you need help looking at your choices, that’s when a mortgage broker can be very useful. I can guide you through the refinancing process and help you see if it’s something that would suit you. The mortgage process can be confusing, so it’s always a good idea to get a professional on your side!
If you have questions about refinancing your mortgage, feel free to get in touch with me!