|WHAT IS MORTGAGE REFINANCING?|
|Mortgage refinancing is a process that involves paying out your existing mortgage with a new mortgage, also know as ‘remortgaging’. Simply put, this means getting rid of the original mortgage by paying it off with the new loan and then paying off the new loan, with new terms, instead.|
|Remortgaging opens up options like:|
What lender you work with
Your rate terms (fixed or variable)
Mortgage agreement terms
Monthly payment threshold
Total mortgage amount
Note: Your personal goals will determine whether you go with less, more, or the same mortgage amount.
|The art of refinancing always requires some level of cost-benefit analysis. Yes, there are fees and some penalties that may be incurred, but you have to determine if the benefits outweigh the cost. The following questions can help determine if and when to refinance your mortgage:|
– How does your existing mortgage rate compare to the rates currently available in the market?
– Rate the peace of mind that a refinance would provide you, on a scale of 1-10?
– Would refinancing at this present time noticeably improve your everyday life?
– Will you be paying off higher interest rate debt, and consolidating it into one simple mortgage payment?
– How much is the penalty, if any, to break your mortgage?
– How much will it cost to have my property valued? (Think appraisal and administrative fees.)
– What are the legal and closing costs, if any, associated with the refinance?
(Consider any discharge fees if you decide to switch lenders.)
|HOW DOES IT WORK?|
Determine the approximate value of your home.
80% of your home value will determine your maximum mortgage amount.
Determine the balance owing on your existing mortgage.
Subtract your balance owing from 80% of your home value.
The amount remaining will become additional home equity.
Use this additional home equity to pay out debts, renovate, invest or whatever else you’d like to do.
Remember: After refinancing, paying off your original mortgage is the first thing on your to-do list.
|In Canada, residents are more likely to have high pensions and low RRSP limits. For that reason, it may be wise to invest your low-interest funds in a TFSA.|
On the other hand. if you use money from your refinancing towards any non-registered investment (non TFSA or RRSP investment) your contributions are still likely tax-deductible.
For example, the funds used to invest in a rental property, stock or bond, second mortgage investment or other income-producing investment are likely tax-deductible.
Imagine this, you pay $10,000 per year on interest for money used to invest with.
If you are in a 40% tax bracket, you have the ability to write off $4,000 of interest.
This would result in a $6,000 after-tax interest cost ($10,000 – $4,000 = $6,000).
Refinancing Your Rental Property
Renovate. Get the most out of refinancing by increasing the appraised value of your property.
Lease. Increase your refinancing allowance by increasing your income with rent payments.
Refinance. Access additional financing from your property’s appreciation without selling the property.
|Check out our Refinancing to Invest series on Instagram! Our collaboration with G.A. Investment Group allows us to offer a complete approach. We understand the needs and struggles of our clients, so we focus on financial education as much as we focus on mortgage solutions.|