Questions to ask before refinancing your home

Jean-Guy Turcotte

Most often people refinance for a couple of reasons; for monetary issues to consolidate debt to have better household cash flow, or to get a lower interest rate and payment.

Life happens to people, and they need to get access to the equity that has built up in their home.

Of the cases that I see, people are refinancing because of medical reasons, divorce, loss of one or both incomes in the household, a decrease in one’s wage and bills becoming unmanageable. Sometimes it is for investment purposes, such as maxing one’s annual RRSP contribution.

The first thing you need to ask yourself is, “Why am I refinancing?” Can you afford your current debts, but you want to take advantage of the lower interest rates and consolidate all of your payments and end up with a lower payment?

If you are refinancing because your spending habits got out of control, then it’s time to look in the mirror and ask yourself how you got into this mess and can you get yourself out and stay out.

That’s one of the benefits of owning a home; having the option to do that. Let me caution you, once you’ve consolidated all your debts into one or two mortgages, and lowered your payments by hundreds a month, don’t be rushing out to buy a car or a new computer just because you opened up some monthly payment room. Wait four to six months, and see if your spending is under control.

If you don’t see changes and you get everything maxed out again, with the new rules in place you will likely NOT have the option to refinance. The lenders only refinance your home equity to a certain level of the value of your home, so the option may not be available again. If consolidated properly, you shouldn’t have to call me unless it is to lower your rate and you’ve built up your equity again to move your mortgage to a new property.

I’ve had situations where I’ve been able to re-structure a client’s debt load and put $1,600/month back into the household cash flow, which meant that they could start saving again! I’ve also seen the opposite!

The past couple of years have brought with it an extremely low interest rate climate. There’s good news and bad news.

When interest rates stay relatively flat, then paying out or breaking your mortgage is relatively cheap — you only have to pay a three-month interest penalty. But, when interest rates fall, then an Interest Rate Differential (IRD) may come into play. In today’s climate, I’ve seen many high payout penalties.

If you’ve been in your current mortgage for less than two to three years, than it may not be beneficial to pay out your mortgage, as the IRD may be too high, but I’ve also seen where the IRD was charged and it was still beneficial to change the mortgage.

Whatever your reason to refinance, call a mortgage professional to find out your options. If you want to consolidate because your payments are too high, don’t wait until it is too late, you don’t want to be facing the foreclosure Sheriff, as you should still have options.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be reached for appointments at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca

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