How Refinancing Your Mortgage Can Help You with Repayment
Refinancing a mortgage allows the borrower to move their existing mortgage somewhere else with more favourable terms. In a place like Canada, refinancing a mortgage is ideal for many people because the terms are generally more relaxed. However, despite its benefits, many people don't often choose mortgage refinancing for various reasons, such as sticking with their current terms or not knowing of it in the first place.
For this reason, we'll discuss how mortgage refinancing can help borrowers with their repayments. Read on below to get started.
How Mortgage Refinancing Works
When borrowers decide to seek mortgage refinancing, they can apply for a loan from another lender through a mortgage broker. These lenders will then consider their application and give them a new loan with new terms and conditions.
The borrower needs to consider which option is best for them. If the interest rate is too high, they aren't allowed to pull out as much cash from their home as they would like, and the breakage penalty to switch from their current lender is too high, then it's probably not the best option. But if they find a lender with terms that are more in their favor, they can proceed with their application and apply for a new loan.
The borrower will then have to sign an agreement with their lender, usually a bank or a credit union, to finalize the refinancing. The borrower will then pay off their old mortgage, and their new loan will be paid off over time.
The Benefits of Mortgage Refinancing
When you refinance your mortgage, two primary benefits can be obtained. These are:
Lower Mortgage Rate
The most notable benefit of refinancing your mortgage is getting a more affordable rate. By doing this, the borrower will be able to repay the loan faster and for a lesser interest rate. Most people would prefer a lower mortgage rate instead of a higher one, especially if it means they have to cut down on their overall financial obligations.
Taking Out Home Equity
Most people have built up home equity they can take out while they are refinancing. This is called a refinance switch. This is a way to kill two birds with one stone so you get a better rate and you pull out home equity to pay off other debts or have cash handy for renovations or investment property.
Requirements for Mortgage Refinancing
Now that we know what mortgage refinancing is and how it works, here's what you'll need to get it:
Credit Score
A borrower needs to have a good credit score to be eligible for refinancing. This is because the lender uses your credit history to determine if you're a safe bet or not. Any history of defaulting on payments or numerous loans will immediately disqualify you from refinancing.
Your Case
Apart from your credit score, the lender will also want to look at your case and decide if it's worth it for them to approve your application. This is especially relevant for first-time and repeated borrowers. If you're a first-time borrower, the lender will want to see proof that you're comfortable with financially managing a mortgage loan. For repeat borrowers, the lender will want to see how well you've handled your previous loan and the history of your payments.
Mortgage Documents
Lastly, you'll also need to provide the lender with the mortgage documents and documents to prove your income. These documents include your latest paystubs, bank statements, and tax returns.
Will It Work for You?
If you're wondering whether or not you can benefit from refinancing your mortgage, you may want to look at your situation. If you're having a difficult time paying off your loan, if the terms of your loan are too stressful, or if you don't feel like you can make ends meet, then it might be best to consider mortgage refinancing as an option.
If your income is low, you can also apply for refinancing. It's also a good idea to refinance if your loan has a high-interest rate and you haven't been able to handle its terms.
THE BOTTOM LINE
In the end, it all comes down to your finances and goals. If your current terms are too much for you to pay off, it's better to look for a better solution. You might find that mortgage refinancing is just what you need to get your current situation under control. Just be sure to shop around, then you can weigh your options on refinancing your mortgage.
Do you want to learn more about mortgage financing in Canada? Level Up Mortgages supports homebuyers and homeowners in attaining success in their mortgage journey with mortgage strategy, digital mortgage education, and introductions to all the other experts you need to succeed in home buying and your personal finance. To assist homebuyers and homeowners in purchasing or refinancing new homes, we work with premier banks and best-rate mortgage lenders in British Columbia and Ontario. Get in touch with us today!