How to Refinance Your Mortgage

How to Refinance Your Mortgage

Considering refinancing your mortgage to take advantage of the lower rates? A mortgage refinance has the potential to save you thousands of dollars over the term of your mortgage. It’s also a great way to consolidate debt or access some equity in your home to use towards renovations or topping up your investments. If you’re ready to get started on the process, find out how you can refinance your mortgage below.   

Breaking Your Existing Contract

If you don’t have a fully open mortgage or one that is up for renewal, you’ll have to break the existing contract to take on a new one. In most cases, breaking your mortgage normally will incur a prepayment penalty. This penalty can equal either three months’ worth of interest charges or an interest rate differential. If the cost benefits of switching to a new lender outweigh the penalty, you could save thousands off your mortgage in the long run.

Blend and Extend

Another way to refinance to get access to your equity or a lower mortgage rate is to blend and extend. This option provides you with a blended rate of your current rate plus today’s lowest rate for the new money being advanced and results in a rate somewhere between the current rate and the new rate. And because you are keeping your “existing” mortgage rate and not “breaking” your contract, you won’t have to pay a prepayment penalty. A blend and extend is one of the best ways to take advantage of the low rates on the market right now, but also helps you keep a low rate if you originally mortgaged with a low rate. Not every lender has a blend and extend policy though, some will only blend to term and others not at all, some will add a second component under the mortgage charge. It is important to review all your options. 

Taking Out Equity through a HELOC 

If you need access to your money and don’t want to pay the high interests associated with credit cards and loans, using a home equity line of credit (HELOC) is a great option. Getting access to your equity through a HELOC is similar to using a standard line of credit to get access to money. The only difference is that it is secured against your home and offers lower interest costs. The LOC portion of the mortgage can’t exceed 65% of the value of your home but the combined amortized mortgage & loc portion can go to 80% of the value. Unlike your mortgage, you only have to pay the minimum interest-only payment each month on the amount borrowed. The principal payments can be made at will, so it’s important to be disciplined if you want to reduce the balance over time.

Not sure what refinancing option is best for you? Contact us at the Mortgage Advisors today. Our professional team will find you the best option available to access some of the equity in your home or to save thousands of dollars over the term of your mortgage with a new rate.

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