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When Is The Right Time To Refinance Your Mortgage? A Guide For Canadians

If you’re a Canadian homeowner with a mortgage, you’ve likely heard the term ‘refinancing’ being thrown around, especially in times of economic uncertainty or fluctuating interest rates. Refinancing your mortgage in Kingston can be an excellent strategy to lower your monthly payments, reduce interest rates, or access the equity in your home for much-needed expenses. But the burning question is, when is the right time to refinance? 

Here’s how to know when is the right time to refinance your mortgage: 

1. A Drop in Interest Rates

For many homeowners, a significant drop in interest rates is the primary motivator to refinance. If current rates are notably lower than when you locked in your mortgage, it may be a good time to refinance to capitalize on the potential savings.

Remember that a mere 1% decrease in interest can result in substantial savings over the life of your home loan. However, it’s essential to weigh the benefits against the costs of refinancing, such as prepayment penalties and administrative fees.

2. Improved Credit Score

If your credit score has seen a considerable boost since you first got your mortgage, you might qualify for better mortgage terms now. Lenders reserve their best rates for borrowers with higher credit scores, so improving yours might get you a more favorable rate and save you money over the long term. When shopping around, always work with an experienced mortgage agent who can bargain on your behalf and get you the best mortgage deal.

3. Equity Access

Refinancing can also be a means to tap into the equity you’ve built in your home, which can be particularly useful if you need cash for major expenses like home renovations, investments, or debt consolidation. This is known as a ‘cash-out refinance,’ and while it increases your loan amount, it can provide liquidity when you need it.

4. Changing Financial Goals or Needs

If your financial situation or goals have changed since you took out your initial mortgage, refinancing might make sense. For instance, if you’ve inherited money or received a significant raise at work, you may want to switch from a 30-year mortgage to a 15-year one to pay off your home faster. In the long run, you’ll save thousands in interest but when doing so, carefully plan out your expenses and keep a substantial amount for emergencies.

Alternatively, if you’re looking for lower monthly payments (maybe due to a tighter budget or job loss), refinancing into a longer-term loan might be the right move. For example, you are 4 years into the mortgage term. At 5-year market, you can restart a 30-year amortisation period instead of 25-year. This means that you’ll pay more in interest than previously anticipated.

5. Adjustable-Rate to Fixed-Rate Mortgage Switch

If you have an adjustable-rate mortgage (ARM) or variable mortgage and foresee a rising interest rate environment, switching to a fixed-rate mortgage can offer stability. Unlike ARMs, fixed-rate mortgages maintain a constant interest rate throughout the loan’s duration. Opting for this stability insulates you from the unpredictability of market shifts, ensuring that your monthly payments remain consistent.

6. Expiring Mortgage Term

In Canada, the most popular mortgage term is the 5-year term. If your term is nearing its end, it’s a natural time to look at refinancing options, especially if market conditions or your personal circumstances have changed.

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Consider The Costs

While refinancing can bring many benefits, it’s essential to consider the associated costs:

  • Prepayment Penalties: Many mortgage lenders charge penalties if you break your mortgage term early. It’s crucial to determine if the savings from the new rate will surpass this cost.
  • Legal and Administrative Fees: There might be legal costs to change the title, as well as appraisal fees and other administrative charges.

Before making a move, do the math. Ensure that the long-term savings outweigh the immediate costs of refinancing.

Working with an experienced mortgage agent 

With their deep understanding of market trends and lender preferences, an experienced mortgage agent ensures you snag the best possible terms and rates. Their connections within the industry can grant you access to exclusive offers, making a notable difference in the final deal. Having a trusted guide by your side in such significant financial decisions is indispensable. When you’re ready to make the smart move in refinancing, reach out to Kingston’s top-rated mortgage agent, Leo Ragusa, for unmatched assistance.