Refinancing is replacing an existing debt obligation such as a mortgage, with a debt obligation bearing different terms. Some people also refer to refinancing as switching or transferring. It all pretty much just means that you are swapping out an old mortgage for a more favourable mortgage.
So why should you consider refinance/switching your existing mortgage? Here are the most common reasons for refinancing:
Reducing your current mortgage interest rate
- If you are not planning on moving, but would like to switch from their current higher rate to a lower variable or fixed rate option. Your overall savings should increase due to lower mortgage payments, however, the refinancing penalties would have to be taken into account to ensure that savings are still higher after penalties and fees.
Consolidating your debt
- You have credit card debt or other loans that you would like to pay off, so refinancing may be a good option as you will consolidate all your other debts into one payment with your mortgage. The rate you will pay may be lower than that of your high interest credit card for example, so you will end up saving some money in the long term.
Raising money for home renovations/improvements or other investments
- Almost the same concept as above. You have been building equity in your home, so now you can take out that equity to increase cash flow. With the extra cash, you can update your kitchen and other home renovation projects.
Reducing the loan term to pay off mortgage quicker and build equity quicker
- You will pay less interest and build equity and pay off the mortgage much faster. This also means that you may have higher monthly payments.
Lock-in from a variable rate to fixed rate mortgage
- Interest rates on variable mortgages generally increase as prime rate moves up. It may be beneficial to lock into a fixed rate if interest rates are increasing. Doing this ensures that your monthly payments are consistent, therefore allowing you to budget much easier.
Before refinancing, read the fine print on your current mortgage to figure out the penalties, and any other fees. If you are unsure, always seek professional advice.
All SMP mortgages are available for refinancing. Call 1-866-521-9557 to talk to one of our Mortgage Coordinators today. Our knowledgeable mortgage coordinators can provide you with advice and information that is right for your situation.