WHAT IS REFINANCING AND HOW IT WILL CHANGE YOUR CREDIT?

The need to refinance your mortgage can be for many reasons. Whichever the reason you are refinancing, there are a few things to consider. One of the top questions we are asked as a Mortgage Broker is “will refinancing hurt my credit?” The answer to this question brings cause for a closer look at the refinancing process in itself.

First, you need to know that when you refinance there will be consequences outside of affecting your credit. To refinance you are essentially restructuring terms of a contract and therefore a penalty will apply.

Every lender is different in how they calculate penalties, but in general:

• Breaking a fixed mortgage will result in you paying the interest associated determined by the current interest rate for the remainder of your term or three months’ interest. Whichever of the two are greater.
• Breaking a variable mortgage will result in you paying out three months’ interest.

There are also limitations on the amount you can borrow with refinancing against your mortgage or tapping into your home equity line of credit.

• For borrowing or securing a line of credit against your property you will borrow up to 80% of the appraised value of your home, less the mortgage you have.

• For a Home Equity Line of Credit, you can take out a line of credit up to 65 per cent of the value your home, with the total Home Equity Line of Credit and mortgage totaling 80 per cent.

Now that we have covered the penalty and borrowing limitations, we can tackle the true question—will refinancing change my credit?

The answer to that is yes. No matter how you look at it, debt is still debt. Whether you are looking to refinance to gain access to your home’s equity, gain a better rate, or utilize your home’s equity for investment purposes you are still borrowing money thus your credit is going to change.

Let’s take a look at 3 examples to put this into better perspective.

No matter what your reason for refinancing, remember that debt is still debt and you credit may be impacted.

We advise that before you refinance consider the reasons you are doing so. Ensure they are justified. For example, if you are refinancing to do a much needed home renovation, purchase an investment property or pay for your child’s university tuition then those are all wonderful reasons for refinancing. On the flip side, refinancing to take a family vacation—maybe not a good reason. Look at what your reasons are and then decide if this option is the right one for you.
As always, Dominion Lending Centres is here to help! Give us a call and we can help you navigate your refinancing

READING THIS COULD SAVE YOU THOUSANDS OF DOLLARS!! (AKA HOW TO RENEW YOUR MORTGAGE IN 5 EASY STEPS)

What is a mortgage renewal you ask?

Each mortgage has a set term which can vary from 1-10 years. Just before the end of your term you will receive an offer from your current lender and you have 3 options:

1. Sign and send back as is.
2. Check the market to make sure you are getting the best rate and renegotiate with your current lender
3. Move the mortgage to a new lender.

Option 1 is not a very good idea in my opinion. The onus is on you to make sure you are being offered the best rate. Banks are a business like any other and they are seeking to make the highest profits they are able as to keep their shareholders happy. There is nothing wrong with that. That does mean however that you as a savvy consumer should take a few minutes to ensure you are being offered the best possible rate you can get.

Think of it as the sticker price on a vehicle at a dealership. The rate you are being offered is a starting point for discussion, not the final price. Let’s look at an example:

• Mortgage of $300,000 with an amortization of 25 years.
• Your offer is for 3.19% for a 5 year fixed = $1449.14/month and you will owe $257,353.34 at the end of the term
• Best rate is 2.59% for a 5 year fixed = $1357.38/month and you will owe $254,372.59 at the end of the term

You would pay $91.76 less each month or $5505.60 over all 60 months and still owe $2,980.75 less.

So you need to ask yourself if you are OK handing that money over to the mortgage provider or if you would prefer to keep it yourself and I am pretty sure I know what your answer will be.

So here are the steps I mentioned to save yourself all that money.

1. Receive the offer from the mortgage lender and actually look at ASAP so that you have enough time to make an informed decision.
2. Research via the internet and phone calls to find out what the best rate even is.
3. Phone your current lender and negotiate! OK, you are going to have to get downright assertive and that may be uncomfortable but when you compare your comfort to the thousands of dollars you could save, you will see that it’s worth it.
4. If said lender will not offer you the rate then move the mortgage. You will have to provide paperwork and complete the application but if you keep in mind the example from above then I repeat, it’s worth it.
5. Take a look at your budget and see if you can increase the payments to decrease the mortgage and save yourself even more as the overall interest costs decrease.

Keep in mind when that renewal notice arrives that you literally have the power to save yourself money and you are not obligated to accept the first offer which is presented to you and I truly hope you do not. If you need some more information, please do not hesitate to contact me!