To refinance or not to refinance: that is the question

Pikkert discusses what should you know before you refinance

Once upon a time you purchased a home.

It was the place you saw growing both your dreams in a safe environment and a vessel to financial prosperity in the future. And then…something happened in your life and you find yourself considering a refinance as a way out of a situation you had not anticipated.

• Bob and Mary have been married for 54 years when she is diagnosed with cancer. Bob takes care of her and their savings end up fully depleted due to the extra costs the illness incurs.

After she passes, Bob finds himself needing to access funds for the balance of his retirement.

• Jordyn has been presented the opportunity to become a partner in the company but needs the funds for the required capital buy-in.

• Jim has been in the oil industry for years. He was let go during the last downturn. He went through his savings and then accumulated debt until he was able to find a similar position.

Now he is back at work but feels that he isn’t catching up and would like just one payment for all debts.

• Susan went through a major illness. Her family lent her money so she could take time off work to recover. Now that she has done so, she would like to pay them back in full to avoid any family money wars.

• Patty and Darren have an opportunity to invest in a home near the university their son will attend but need to access the cash for the down payment.

The point of all these stories is to show you that life happens and a refinance can be a way to get back on track or take advantage of an unexpected opportunity.

Many people feel almost a sense of shame as far as refinances go. As though they should have been better with their money management. That is not at all the case. A refinance should be seen only as a tool like any other.

So what should you know before you refinance.

1. The maximum amount allowable for a refinance is 80% of the property’s value. A $400,000 home will only be eligible for a $300,000 mortgage. If you currently owe more than 80% then a refinance will not help.

2. There will be costs. A mortgage is a contract and if it is broken early there will be a penalty.

A call to your current mortgage provider is a very good idea as a first step. There will also be legal fees to register the new mortgage and possibly an appraisal. Each lender is different so make sure you look around for the best option.

3. The interest rates are higher for these mortgages.

The government came in a couple years back and made some changes. Those with more than 20% equity in their homes are considered a higher risk as the banks can no longer get CMHC insurance on these loans. As of today a five-year mortgage for someone with 5% down would have an interest rate of about 3.34% oac.

A refinance would have a best rate of about 3.69% oac.

A refinance can make good sense if you are considering paying out credit cards which have higher interest rates but make sure to consider getting rid of some your available credit so you don’t find yourself here again.

Additionally, if you have substantially decreased your monthly borrowing costs, it is a great time to consider taking the amounts you were used to paying and directing it right back into a savings account or against the mortgage.

Life happens to the best of us and a refinance should be seen as nothing more than a potentially useful tool in your arsenal. Call your mortgage professional today to see if it may be right for you.

Pam Pikkert is a mortgage broker with Mortgage Alliance – Regional Mortgage Group in Red Deer.

Just Posted

Young athletes hope to achieve Olympics dreams through RBC Training Ground

Olympic sport talent scouting event took place in Red Deer Sunday morning

Sharon and Bram head to Red Deer on final tour

The duo is celebrating their 40th anniversary farewell tour

Supporters rally for Jason Kenney as UCP leader stops in Red Deer

Kenney promises equalization reform, stopping ‘Trudeau-Notley’ payroll hike, trade, economic mobility

Motown Soul celebrates ‘greats’ of classic era

Show pays tribute to Diana Ross and The Supremes, The Temptations, Marvin Gaye among others

VIDEO: Restaurant robots are already in Canada

Robo Sushi in Toronto has waist-high robots that guide patrons to empty seats

1,300 cruise ship passengers rescued by helicopter amid storm off Norway’s coast

Rescue teams with helicopters and boats were sent to evacuate the cruise ship under extremely difficult circumstances

B.C. university to offer first graduate program on mindfulness in Canada

University of the Fraser Valley says the mostly-online program focuses on self-care and well being

Sentencing judge in Broncos crash calls for carnage on highways to end

Judge Inez Cardinal sentenced Jaskirat Singh Sidhu to eight years

‘Families torn apart:’ Truck driver in fatal Broncos crash gets 8-year sentence

Judge Inez Cardinal told court in Melfort, Sask., that Sidhu’s remorse and guilty plea were mitigating factors

WestJet sticking with Boeing 737 Max once planes certified to fly

WestJet had expected to add two more of the planes this year to increase its fleet to 13

Fierce house cat spotted as ‘aggressor’ in face off with coyote in B.C. backyard

North Vancouver resident Norm Lee captures orange cat versus coyote in backyard showdown

Wilson-Raybould to reveal more details, documents on SNC-Lavalin affair

Former attorney general has written to the House of Commons justice committee

Most Read