Is now a good time to refinance?
As the country continues to respond to the economic fallout caused by COVID-19, there has been a huge rise in Canadians looking to refinance their mortgages following the Bank of Canada’s March 27th emergency rate cut. Given the current pandemic, Canadians are trying to save money anywhere they can.
When people refinance their mortgage, it is quite simply to get to a better place financially. For some, it is to reduce the mortgage interest rate or lower the monthly payment. For others, it is to extract equity from the home, often for one of the following reasons:
- Consolidating high interest debt
- Get access to more money to give themselves a safety net
- Financing home renovation projects
- Funding post-secondary education
- Tapping into home equity to help adult children with down payment or closing costs on their first home
For many of us, a large majority of our wealth is tied to our home. Keep in mind as you make your monthly mortgage payments, you add equity to your home. Now may be a good opportunity to leverage some of that equity to build yourself a financial cushion.
In order to refinance, you have to break your current mortgage, which may come with penalties. There are two types of penalties: three months interest and Interest Rate Differential (IRD). Variable rate mortgages always have a three month interest penalty, whereas fixed rate mortgages take the greater of three month interest penalty or IRD. It’s important to call your lender to find out which one applies to you.
If you can save more than the cost of the penalty before your term ends, breaking your current mortgage is worth considering. If you can’t, you may end up paying more in the long run, even with a lower interest rate.
Depending on your personal circumstances, now may be the time to take advantage of that equity. A refinance can act as a wise financial tool to assist with any unforeseen circumstances and help you build up your emergency savings.
Before you decide to go ahead, it’s important that you fully understand your options. Let me help you take a closer look at how you can use a refinance to help you regain control during this period of uncertainty. Send me an email to get the conversation started.
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors