Refinancing Your Home
When the sun and heat finally arrive, planning for some summer activities begins in earnest. But, what if the cost of your plans exceeds your current cash flow. One option is to consider a refinance on your personal home in order to pull out some equity to use as cash flow.
HOW MUCH CAN I GET?
Whether it’s for some new furniture, some house upgrades or a special summer adventure, the new mortgage rules allow a maximum amount of up to 80% of the appraised value to be available for a refinance. If you qualify, the rates will not be the advertised rates that you see from major lenders. Typically, the rate for a refinance mortgage is about 0.3 – 0.4% higher than the advertised rates on a 5-year fixed term. You also have the option of getting an extended amortization of 30 years to help offset the higher monthly payments. The longer amortization may also help with having to qualify the payments at 2% over the interest rate you will pay (stress test).
WHAT IS THE COST?
If you are refinancing your first mortgage and it is not time to renew yet, there will probably be a penalty. The amount of the penalty will vary so your best option is to call your current lender and ask what the penalty would be to payout the current mortgage. The other possible costs with refinancing the first mortgage is an appraisal (Cost around $350) and legal fees to discharge the current mortgage and register the new mortgage (Cost around $1200).
WHAT IF THE PENALTY IS TOO HIGH?
In rare cases, you may need to consider looking at a private mortgage in a new first mortgage position or a second position. Private mortgages in first position are usually at higher rates (8% – 10% plus fees). Private mortgages in second position are even higher at 12% – 15% interest plus fees.
While I don’t always recommend a refinance, in specific cases, it may be your best financial option. Getting good advice from a Mortgage Broker is the best first step to make when you are considering the refinance option.
To discuss your mortgage options or for more information, feel free to make an appointment or apply online at jmacdonald.ca.
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