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Home Mortgage Refinancing

Typically home refinancing is done when you have a mortgage on your home and apply for a second mortgage to pay off the first mortgage.  When considering a home refinancing, it is important to first determine whether your interest savings will exceed the fees you pay to refinance.

Benefits of Home Refinancing
Imagine a scenario where you can have access to extra cash, while simultaneously lowering your monthly mortgage pay-ment.  This dream can become a reality through mortgage refinancing.  A house is the largest asset you may ever own.  Likewise, your mortgage payment may be the largest expense you'll have in your monthly budget.  Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket?  When you refinance your mortgage, you can take advantage of the equity in your home and increase cash flow.

Lower Refinance Rate, Lower Payments
When you purchased your dream home, the financial environ-ment dictated interest rates.  While certain factors, like your credit rating and the amount of down payment that you could afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment.  However, interest rates fluctuate.  When the Bank of Canada enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.

Shorten the Length of Your Mortgage when Refinancing
Another advantage of home refinancing is that you can shorten the term of your mortgage.  Let's say, for example, that you originally had a 30-year mortgage and have been paying it for eight years.  Thanks to mortgage refinancing, you can switch to a shorter term of either 10, 15 or 20 years.  This can save you thousands of dollars of interest.  Also, if the refinance rate is lower, but you maintain the same monthly payment, you will build up equity in your home more quickly, because more of your payment will be going towards principal.

Exchange an Adjustable Rate for a Fixed Refinance Rate
When interest rates are low, adjustable rate mortgages (ARMs) are the housing market's darlings.  However, as interest rates increase, that adjustable rate may not look as sweet.  It's also possible that you opted for an ARM because your financial future was less secure, or you weren't sure how long you'd stay in your home.  If, however, you've become financially stable and know that you'll be staying in your home for several years, it may be beneficial to swap that fluctuating adjustable rate for a fixed one.  You'll have more security knowing that your monthly payment will remain steady, regardless of the current market environment.

Access to Extra Cash - Cash-out Refinancing
One way to put more money in your pocket is to tap into the equity you've built in your home and do a "cash-out" refinancing.  In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash.  This can provide money for re-modeling your home, paying off high-interest rate bills, or sending your kids to college.

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