The word "refinancing" generally means terminating one mortgage loan agreement to enter into a new one during the same term. While there are often penalties for this, it can be worth it. Here are three key examples:
- Paying off higher interest debt: If you have built up equity in your home (i.e. your home is worth much more than you owe on the mortgage), you can increase the mortgage amount and use the extra cash to pay off higher interest debt, like credit cards.
- Reducing the mortgage interest rate: Since mortgage loans are usually held for 20 years or more, even a small decrease in interest rate can have a significant impact on the total cost of borrowing this money. The penalty for terminating your current agreement may be far less than what you can save with a lower interest rate.
- Changing the details of the agreement: Let’s say you get married, and your new partner gets a large commission payment once a year. You could significantly reduce the amount you pay in interest and pay off your mortgage much sooner, if your mortgage agreement allows you to make a lump sum payment once a year.
If you have high interest debt, if mortgage rates have dropped, or if your financial situation has changed, do yourself the favour of talking to us. Ravi and his team can run calculations on numerous different scenarios, to let you make the most advantageous decision.