Mortgage Refinancing
Balance risk and reward with the right strategy
Mortgage refinancing means renegotiating your existing mortgage loan agreement by paying off one loan and replacing it with another. You might do this to consolidate debts, or you could use the equity in your property to increase your mortgage loan amount for large expenses.
Important considerations
Cost of mortgage refinancing
Refinancing costs 3% to 6% of the loan’s principal. It takes years to recoup that cost with the savings generated by a lower interest rate or a shorter term. So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings.
Potential savings
Carefully consider your options to understand your potential long-term savings compared to the short-term costs.
Long-term plans
How long until you are planning to sell your home? This will impact whether or not refinancing is a smart move.
Other debts
When used carefully, refinancing can be a valuable tool for bringing other high-interest debts under control.
Frequently Asked Questions
Is there a benefit to refinancing my mortgage if I’m planning to sell soon?
Refinancing to convert from a VRM to a fixed-rate loan—which often has a lower monthly payment than a VRM—can be a sound financial strategy if interest rates are falling, especially for homeowners who do not plan to stay in their homes for more than a few years.
These homeowners can reduce their loan’s interest rate and monthly payment, but they will not have to worry about how higher rates go 30 years in the future.
I have a lot of high-interest credit card debt. Is it wise to refinance my mortgage to pay it off?
At face value, replacing high-interest debt with a low-interest mortgage is a good idea. It is recommended that you discuss this strategy with your mortgage advisor.
I have a financial emergency and don’t have the funds to deal with it—is refinancing an option?
A serious financial emergency may justify refinancing your mortgage to tap into your equity. If that is the case, carefully research all your options for raising funds before you take this step. If you do a cash-out refinance, you may be charged a higher interest rate on the new mortgage than for a rate-and-term refinance, in which you don’t take out money.
Is it worth it to refinance to take advantage of tax deductible interest?
Increasing the number of years that you owe on your mortgage is rarely a smart financial decision nor is spending a dollar on interest to get a 30-cent tax deduction. Also note that since the Tax Cut and Jobs Act went into effect, the size of the loan on which you can deduct interest has dropped from $1 million to $750,000 if you bought your house after Dec. 15, 2017.
Why refinance?
Refinancing a mortgage means paying off an existing loan and replacing it with a new one.
Obtain a lower interest rate
Shorten the term of your mortgage
Convert between adjustable and fixed-rate mortgage
Tap into home equity for emergency, large purchase or consolidate debt
When is refinancing my mortgage a good idea?
Refinancing can be risky if not done strategically.
Refinance if:
You have the opportunity to reduce your interest rate by at least 1-2%
You are able to reduce your loan’s term without significantly changing your monthly payments
You want to change your adjustable rate mortgage (ARM) to a fixed-rate mortgage or vice-versa
You need to tap into your equity to consolidate high-interest debts or deal with a financial emergency
Risks to Consider
Consolidating debts by refinancing can lead to a slippery slope of never-ending debts if not done carefully
Depending on the situation, you may end up extending your loan term and significantly slowing the process of paying off your home
Refinancing costs 3% to 6% of the loan’s principal, which will take years to recoup that cost with the savings generated by a lower interest rate or a shorter term
Why work with a mortgage broker to refinance your mortgage?
Market knowledge
A broker understands the ins and outs of the local market, interest rates and current mortgage trends, meaning they will also know whether refinancing is a good option for you.
Peace of mind
Refinancing may be the cause or the result of a stressful situation. Working with someone you can trust to help you navigate the process lets you rest assured you are making the best possible decision for the short- and long-term.
Accomplish your goals faster
Working with a mortgage broker means getting advice on setting achievable financial goals and making a solid plan to make them a reality.
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Second Mortgages
Tap into your home equity.
Finance home improvements, pay for higher education costs, consolidate debt or fund other ventures with a low-interest, tax-efficient loan.
Mortgage Renewals
Save money for what matters most.
Renegotiate your mortgage at renewal to lower your payments and spend more on the things you love.