EQUITY REFINANCE FOR A LOWER RATE, RENOVATIONS & DEBT RESTRUCTURING

Refinancing is the process that pays the existing mortgage and/or any other legal claims against the property and sets-up a completely new mortgage(s). There are many reasons as to why you should consider refinancing your mortgage. We can provide you with the technical expertise you need to refinance your Canadian mortgage successfully.

Real Life Example:

Sam and Diane bought their first home 4 years ago and in the meantime had a beautiful baby girl, Emily, now 3 years old. The need for diapers, a stroller, a crib, and everything else required for a new baby, along with the financial stress of Diane staying home to care for Emily, resulted in Sam and Diane accumulating $19,000 in credit card debt. It wasn't planned - like life, it just happened.

When it came to planning their mortgage refinancing, Diane and Sam were working out the details when we showed them how they could use the equity in their home to clear their credit card balances and start planning for Emily's future educational needs. Once we cleared the credit card balances, Sam and Diane could now afford their monthly credit payments. They could use the difference for an Educational Savings Plan for Emily, while safely managing their mortgage. Together, we were able to secure a great interest rate, along with the flexibility of a Line of Credit which could be accessed at anytime to payoff future high interest credit cards debts. More importantly, we freed Sam and Diane from credit card payments and thus, helped them plan for Emily's future.

Example Calculation of Refinancing Savings;

Jayson & Linda have an existing mortgage of $200,000 with monthly payments of $1,220.00 based on their 5.50% interest rate on the home they purchase 3 years ago. They also have a $9,000 balance on their credit card with minimum monthly payments of $270, and room of $25,000 to top up their RRSP. They were also considering renovating their basement for an additional $20,000.

If they were to take out a new mortgage of $254,000 they could pay out their existing mortgage, the credit card, catch up on all of the RRSP contribution room and finish their basement (as well as cover the costs of refinancing). Their cost for the first 3 months would be $2.12/month – that’s not a typo - two dollars and 12 cents per month for each of the first 3 months. Their new entire payment after the first 3 months is $1,285. That’s only a small increase of $65/month!  What is even better is they actually get nearly 50% of the total RRSP contribution dollars back on their tax return – approximately $12,500. After the first three months they are saving by minimizing their interest costs and increasing their cash flow.   

Actual Example:

The Mortgage Centre helps many clients every month, leverage the equity in their home to consolidate the debt and lower their overall payments. The following example was the case for one of our clients. It clearly shows the money they were able to save each month.

As this example shows, we were able to refinance their existing mortgage before the term was up and get them the money they needed to pay off all debts and lower their monthly mortgage payment by $122.52. So they saved a total of $522.52 per month and have been able to put that extra money into an investment account for their retirement.

Consolidate debts:

If your monthly bills have gotten out of control, you might be able to refinance your home and pay them off. The advantage of doing this is to lower your total monthly payments. You should have a mortgage specialist review your situation and make a recommendation.

Refinance a First & Second Mortgage into a new First:

If you have two mortgages on the same property, you can combine them into a new first mortgage, as long as the total amount does not exceed 90% of the value of the property. If the new mortgage is over 75% of the value of the property, normal CMHC/GE Capital premiums and guidelines apply, and one thing to remember here is that only outstanding amounts can be combined - any discharge penalties and costs must be paid separately at closing (please note that we have cash-back programs to help with these penalties).

Financing a Renovation:

If you are doing major renovations (spending over $15,000), it could be less painful monthly with a mortgage as opposed to a loan or line of credit.

Financing the purchase of other investments:

You can use the equity in your home to finance the purchase of investments, and also benefit from the lower carrying costs of a secured line of credit or mortgage and also write-off the interest costs against the taxable incomes.

Financing the purchase of investment property:

If you have the equity and have a desire to be a landlord, you could take equity out of your property by refinancing the mortgage to use towards the purchase of an investment property. This is also called leveraging of your assets.

Financing children's education:

The best thing we can do for our children is be good role models to them, teach them to be responsible citizens, and give them a good base with a good education. With the high cost of many things nowadays, as well as education, it is sometimes difficult to have that kind of money in the bank, but you many have it in the form of equity in your home. Education is something they will never lose on.

Pay for personal or business income taxes owed:

I you have a large amount of personal and/ or business income taxes owing, refinancing is the most cost effective method to paying off high interest, and penalty crippling government taxes.

Closing Costs related to Refinancing:

The regular costs related to the refinancing process are: appraisal ($150-$214), legal fees & disbursements ($450-$650), CMHC/GE Capital Premium if mortgage is high-ratio (this cost can be added to mortgage), PST when CMHC/GE Capital premium is required, and any discharge penalties. You should review your mortgage on a regular basis and keep up with new products and offers that are available - they may save you a bundle. When you break your mortgage contract to renew your mortgage at a new rate and a new term, you are faced with a prepayment charge to reimburse your financial institution for the lost interest income. Typically, this prepayment charge is based on the greater amount of either 3 months interest or the interest rate differential (IRD).

Early Renewal

Whether or not you should early-renew your mortgage depends on several factors. If the current rates are lower than the rate you have, compare the prepayment charge against the savings by having the lower rate, and this will point the way. Or, if you believe that interest rates will be higher at your existing renewal date, you can renew early to protect yourself from higher rates.

One thing to remember if you decide to early renew, is the prepayment charge will have to be paid up front. If there is room, you can add it to your mortgage, but you will have to go through a lawyer to redo the mortgage, and this cost will have to be taken into consideration when deciding which way to go. Some financial institutions will blend both rates for the new term.

Remember that we have the CASH-BACK programs that could pay for your prepayment charge. The savings in some situations run into the thousands of dollars.

Re-examine your mortgage from time to time, and at least once a year. Every year Canadians spend thousands of dollars on their mortgages that could be saved in many situations. Don't let savings on your mortgage in Canada go un-noticed.

Equity Take Out

Equity Take Out is when you decide to "take money out" of your property to use for other purposes. You may have a mortgage already, in which case you will be increasing the principle value of your mortgage. Or you may have no mortgage at all, in which case you are borrowing against your property and creating an Equity Take Out mortgage.

Reasons for an Equity Take Out Mortgage

The reasons for taking money out a property are often as varied as the number of people that take the money out. Some are for investment purposes, others are need-based. Some of the more common reasons include:

• Investment in other real estate properties
• Investment in the stock market or other equities
• Purchasing a recreational property such as a cottage and borrowing the down payment from the primary residence
• Returning to school and there is a need to cover tuition fees
• Investment in a small business or franchise
• Borrowing to make a substantial payment towards an RRSP or RESP and using a lower-rate product sometimes available for mortgages versus other traditional loans

 “The Mortgage Centre cut the interest rates on our debt in half. Now we can afford other things in life.”

“We’re turning our basement into a rental suite. Our home equity line came in real handy”

“After some renovations, we sold our home and made a huge profit, thanks to The Mortgage Centre.”

“We never imagined we could purchase a 2^nd property. Our home equity made it possible.”

“A home equity loan enabled us to consolidate debt and increase cash flow, so we can focus on what really matters.”

Discover the equity value of your home

The Mortgage Centre can help you achieve your goals by lending money based primarily on the equity in your home.

Ø       Free up your cash flow

Ø       Reduce your monthly debt payments

Ø       Renovate your home

Ø       If you can imagine it, we can help you get there

What’s Next For You?