Mortgage Refinancing is a smart financial move that allows you to pay off your existing mortgage loan in exchange for a new mortgage, either with the same mortgagee or a different mortgage institution. The concept of “mortgage refinancing” may seem slightly difficult to comprehend at first, but it is essential to acquire adequate knowledge about the concept before delving into it.
In this article, we will provide you with everything you need to know about mortgage refinancing in British Columbia and the process involved if you are considering it.
Ready to learn? Dive in.
Mortgage Refinancing Explained
Mortgage financing is the act of taking out a larger mortgage to pay off your existing mortgage. Doing this enables you to access up to 80% of your home’s equity in funds, and you can use this money to cater to other financial obligations.Mortgage refinancing is an option for many mortgagors getting close to their amortization date or needing money to cater to some expenses.
Why Do People Get Mortgage Refinancing?
There are several reasons people get mortgage refinancing, but we will examine some common reasons among people in British Columbia, Canada.
1. Affordable Interest Rate
People often go for mortgage refinancing as these loans have lower interest rates than existing mortgage loans. This will help reduce the amount you have to pay every month.
2. Access to Home’s Equity
Mortgage refinancing gives you access to your home’s equity. You can take up to 80% of your home equity in mortgage refinancing, and this is one of the key areas mortgage refinancing differs from a normal mortgage. The benefit of this is that you can get the monetary value of your house for temporary use and gradually pay it back.
3. Amortization Period is Close
Another reason people get mortgage refinancing is if their amortization period is close. This is one of the most common reasons. When the deadline to finish payment on your mortgage is getting too close, and you realize that you may not be able to complete the payment in due time, you may consider mortgage refinancing. This will help you keep your credit score within a reasonable limit and calmly pay the new loan over a fixed or varying period.
4. To Consolidate Debt
People often go for mortgage refinancing to consolidate their debts. If you have several debts across different places, you can use your home to get a mortgage refinancing and use the money to settle those debts. Then, you can focus on paying back the new mortgage as your only debt. Although you have to be careful when doing this as many people have fallen into greater debt due to a lack of discipline in repaying their mortgages.
5. Access to Funds for Other Projects
If you have an emergency or long-term project to pay for and have no means of getting financial support, you can consider getting your mortgage refinanced. Many people do this by leveraging their home’s equity and using the remaining money after paying the current mortgage to secure some financial backup. This method has proven better in some instances than getting short-term loans.
Benefits of Mortgage Refinancing
More people are considering mortgage refinancing these days, and there are several reasons for this trend. Mortgage refinancing offers many opportunities for borrowers that many people find appealing. We will explain some of them better:
1. Reduced Interest Rates
Good mortgage refinancing always comes with a reduced interest rate compared to the old mortgage. It offers a way out for those who struggle to pay the high interest on their mortgages. It may take a long while to finish paying up, but the monthly or yearly payment will reduce enough to ease the burden on the borrower.
2. Helps to Consolidate and Reduce Debt
With credit card debts, short-term loans and several other financial burdens hovering over many Canadians in British Columbia, many take out mortgage refinancing to improve their situation. The loan is used to offset others, and borrowers can focus on the single debt before them.
3. Gives You More Autonomy Over Your Mortgage
Mortgage refinancing allows you to change details of your current mortgage that you do not like. You can go for one that suits your desire regarding interest rate, amortization date, and others.
What are the Disadvantages of Mortgage Refinancing?
As with every other good thing out there, mortgage refinancing has its downsides. We have examined some of them below:
1. Severe Penalties When Defaulted
Mortgage refinancing comes with many perks, but the consequences can be dire if you default on the repayment. It may affect your credit score badly and prevent you from getting other loans later on.
2. High Tendency to Acquire More Debts
Getting mortgage refinancing requires great discipline. First, you need to manage your finances properly to ensure that you do not end up in more debts from the interests accruing on your mortgage. The figures on mortgage arrears keep increasing yearly, which does not bode well for borrowers.
What is the Process Involved in Refinancing Mortgage?
Contrary to what you may have believed, getting mortgage refinancing is no rocket science. The process is straightforward once you have the right guidance.
1. Apply for a New Loan
The first thing to do is shop around for a better mortgage for your home. Compare rates and requirements before making your decision. Once you do that, contact the bank or finance company, and fill out the necessary forms. You will have to meet their eligibility criteria which include being up to 18 years old, being a citizen of Canada and possessing a government-issued ID. Once you fulfill all those, fill out the forms and wait for your request to be processed.
2. End Your Current Mortgage
Once you have your new mortgage ready, you have to cancel the old one. That usually requires you to pay a cancellation fee, among other penalties. Ensure that your new mortgage is enough to cover all the costs you will incur. The moment you are released from your old contract, you only have to focus on repaying the new mortgage and putting the remaining money to good use.
3. Get a Professional to Walk You Through
This step is not emphasized enough. To get the best deal out of mortgage refinancing, you should get a professional to walk you through the process. You can speak to your lender, get a lawyer, or contact other mortgage and insurance experts such as the professionals at Insurance Direct Canada.
Mortgage refinancing is fascinating for people looking to improve their financial situation and have their homes as their biggest asset. If you are one of these people, you must have learnt the fundamentals of mortgage refinancing and know how to make the right decision. Remember to consider the costs you will incur and how the mortgage will affect your credit score. If you do not know much about mortgages and all they entail, you can reach out to experts like Insurance Direct Canada for guidance.
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