6 Benefits of Canadian mortgage refinancing

Canada mortgage refinancing is the process of taking another home loan in order to pay back your original mortgage loan with potentially different interest rates, terms and even amortization. The CMHC or the Canada Mortgage and Housing Corporation are a corporation owned by the Government of Canada.

Traditionally, the CMHC did not allow the additional funds to be used for debt consolidation. But recently it has changed and now you are able to get CMHC insured mortgage for up to 90% of the home equity for refinancing, and you can use the additional funds for debt consolidation, debt reduction and any other purpose. Read on to know the benefits of taking a mortgage for refinancing.

1. You can purchase another property: If you have got home equity, then you can cash out your home equity through refinancing. Use the extra money as a down payment for the purchase of another real estate property.




2. You can finance education: With the rising costs of schools and educational institutions, it is very important to secure the future of your children. With the new changes in the CMHC insured mortgage refinancing, you can refinance a mortgage and use the money to obtain good education for your children. Home equity may be the cheapest option to assist yourself in securing your child’s educational future.




3. You can consolidate multiple mortgages: With mortgage refinancing, you can consolidate multiple mortgages into one with lower interest rate and extend the term of repayment. This is an easier option than paying the installments of two or more mortgages together.




4. Higher Loan-to-Value ratio: Another benefit of using a mortgage for refinancing is that it facilitates more access to equity in your home. The loan-to-value ratios range up to 90% for 2-3 unit residential properties.




5. Lowers interest rates: By refinancing your mortgage, you can lower the interest rates on your mortgage and hence enable yourself to repay the loan in an affordable manner. Decrease in the interest rate leads to lower monthly payments thereby making the repayment option easier for you.




6. You can pay off other debts: By refinancing your mortgage, you are able to apply the additional funds in paying off your other debts. It may be credit card debt, car loans or any other expenses. By refinancing the mortgage you can save a considerable amount because now you can reap the benefits of lower interest rate.

With mortgage refinancing in Canada, you can have access to flexible refinancing options which allows you to access the equity in your home and helps you achieve your financial goals.




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Consolidating Debt: When is the Right Time?

I've heard a lot of people give advice about why you should consolidate debt. The reasons are obvious; to lower your overall interest cost and to improve cash flow. However, I've never heard anyone talk about when you should consolidate debt. I frequently get calls from people experiencing some kind of financial difficulty who are thinking about taking out a mortgage. Trouble is, they’re already maxed out on their credit cards and in some cases they’ve started missing payments. The time to access funds is before you are maxed out on your credit cards -- avoid missing payments at all costs! Anytime you are more than 30 days late making a payment on anyone one of your credit cards, loans, etc. your lending institution will send the information to the credit bureau and your credit will become tarnished. Once your credit is tarnished it will be more difficult and more costly to get the funds you need. Therefore, the time to access mortgage funds is before you are maxed out and before you have started missing any payments!

Is Now a Good Time To Refinance Your Mortgage?

With mortage rates down, a lot of people who have fixed rate mortgages at a higher rate are wondering if now is a good time to refinance their mortgage to get a lower rate. Generally I believe it is NOT, but the first thing you need to do is find out what your penalty will be to get out of your current mortgage. To get out of your mortgage, most institutions charge three months interest or the interest rate differential, whichever is greater. The interest rate differential (IRD) takes into account the difference between your contract rate, the number of months remaining in the contract and current rates. Note that the lower rates get the bigger the penalty (IRD) gets. Don't make the mistake of comparing your fixed rate mortgage with variable rates. No-one can tell for sure where rates will be in one or two years. If you choose to go with a variable rate, know that there are risks and be sure you are prepared to live with potential fluctuations in rates.

Once you know what your penalty will be, it's worth asking your lender what alternatives, if any, they are willing to offer you. You might be able to get a lower rate by negotiating an early renewal. By blending and extending your contract with today's lower rates you might be able to avoid the penalty altogether.

It might be worth refinancing if you have other debt outside the mortgage at higher rates that you would like to consolidate into your mortgage. Find out what your bank is willing to do for you, then seek the advice of an independent mortgage specialist to make sure you're getting your best deal.

Save your credit: Avoid missing payments at all costs

I frequently get calls from people who for various reasons have found themselves unable to meet their payment obligations. Whether they are having trouble making their mortgage payments, paying credit card or telephone bills, my advice is ~ avoid missing payments at all costs!

So how do you make the payments if you are short of cash? Take out a loan, borrow from a friend or family member. If you miss payments you will damage your credit. Then later, when you try and borrow it will harder to do so and more costly because your credit will be damaged.

If you have equity in your home, use it! Get a new 1st mortgage or a 2nd mortgage while your credit is good. If your cash flow problem is temporary, you will pay down the debt later when your situation is improved. If your cash flow problem is not temporary, then you need to take steps to reduce expenses i.e. downsize.