Every question you may have about Mortgage Refinancing answered!
If you are a lucky homeowner you have been blessed with an extraordinary run of good fortune. It’s been almost thirty years since real estate in the GTA went through a protracted slump.
Skip to our Refinance FAQ questions
Values just seem to rise year in and year out. And at the same time, we have witnessed an incredible drop in mortgage interest rates over time, to the point where some people now have mortgages with a rate of less than 1% !!
I bought my first house in 1990 and my mortgage interest rate was 14.625%. Talk about night and day!!
All this means homeowners have built up terrific wealth through increased home equity. There are many reasons why they might want to tap into that home equity – this is called refinancing their mortgage.
Homeowners may want to refinance to extract some equity OR to ensure they can lock in current low interest rates for another five years or so.
There is no limit to the sort of things you can use the proceeds from a refinance. The ones we see most often are:
- Debt Reduction
- Family Assistance
- Home improvements
- For Investment Purposes
- Buy another home
But there are many other valid reasons to want to extract equity from your home. Especially when the cost of borrowing is so low as it is these days.
This page explores the most common questions which arise when homeowners consider refinancing their mortgage.
Archive of Mortgage Refinancing Questions
What is a Mortgage Refinance?
A mortgage refinance occurs when changes are made to the current mortgage on your home. The changes might be with the same lender, or perhaps even a completely different lender.
The term mortgage refinance applies to existing homeowners who already have some mortgage financing in place. It does not apply to purchase situations.
When Would I Want To Refinance My Mortgage?
Often the reason is the homeowners need money. The new money could be to:
- Pay off debt – it could be credit card debt, CRA debt, student loans, car loans…..anything really.
- Assist family in need. Could be to assist with a home purchase or help pay for education or help an elderly relative.
- Pay for home improvements. Borrowing money cheaply to invest in your most important asset is often a winning strategy.
- Free up capital as a down payment on another property.
- A new mortgage is applied for to get a lower interest rate.
- A new mortgage is applied for to reduce the monthly payment. This could be done by increasing the amortization period or by lowering the interest rate.
- Arrange a second mortgage on your property, leaving the current mortgage in place. This can be effective when the penalty to break the first mortgage is large or when the homeowners may not qualify for a new, larger first mortgage.
Steps explaining how refinancing a mortgage works
- First you need to determine what you are trying to accomplish – is it to reduce monthly payments? Is it to take money out of the house equity? Is it to lock in a much lower interest rate?
- Next you need to review your needs and your personal circumstances with a mortgage professional – a mortgage broker or an experienced banker. An advantage of talking to a mortgage broker is they have access to dozens of lenders – and different types of lenders too. So if your situation does not fit at your bank, there are still many other viable mortgage refinance solutions available to you.
- The qualification process for a mortgage refinance is very similar to the purchase process. The solutions you are offered will depend mainly on your Income and Employment; your Personal Credit History; the Location of your Property; the Condition of your Property; and your Personal Financial Picture overall.
- An application is completed and documents are requested from you. Your situation is assessed and then your best options are explained to you. Once these are understood and agreed to, your mortgage broker will submit your application to the most suitable lender and an approval will be requested.
- Once the approval is forthcoming, your broker will work with you to satisfy all lender conditions and coordinate the process with other parties till the scheduled funding date. There are always multiple moving parts, and other people involved in the process.
- You will need a real estate lawyer to register the new mortgage and discharge the old one.
- You will often need an updated appraisal of your property. Your broker will arrange this.
- You will need to update your property insurance.
There may be others the lawyer must direct payments to. For example, credit card companies, CRA, insolvency trustees and Collection Agents.
Does it matter when you apply for a mortgage refinance?
We typically budget around six weeks from beginning to end of a mortgage refinance.
For a private second mortgage, most of the time we budget four weeks, though we can certainly move much faster if the situation is desperate.
We usually set the funding date in the middle of a month. We avoid month end and the beginning of the month as these are typically the busiest times for real estate and mortgage transactions.
If your situation is truly urgent and cannot wait, there are private mortgage lenders who may be able to fund a mortgage from A to Z within a week or so, maybe even less. This can be a new first or second mortgage.
How much is the most equity I can take out when refinancing?
Most lenders will allow you to increase your mortgage by $200,000 without issue. The chartered banks are usually alright with a larger amount – as long as the reason for doing so makes sense.
For example, recently we had a client with no mortgage on his property, refinance to $400,000 – his stated reason for doing so was to invest the money in the equity markets and that made sense as he already had a decent sized investment portfolio.