The new mortgage rules in Canada have definitely had an impact on new home buyers, but those with an existing first mortgage who want to refinance may be in for a surprise. If you were considering refinancing to consolidate your debts, or you need extra money for home renovations or you would like to invest in another property, it may be more difficult for you to qualify.
Let’s be clear about the term “refinancing”. Refinancing is adding money to your balance or adding time to your remaining amortization, or both. This is not to be confused with “renewing” or “switching” or “transferring”.
Refinances are now considered un-insurable and are not available for what was known as back-end default insurance. The cost of money for refinances is now higher for the lender and hence the interest rate to you is higher. In addition, all uninsured mortgages are subject to a new qualifying rate, or stress test. This rate is the Bank of Canada’s five-year rate, currently at 5.14%, or the lender’s contract rate plus 2% — whichever is greater. Your mortgage payment will still be based on the contractual mortgage rate but the higher rate will be used for qualifying purposes.
If you have a lot of equity and don’t have a lot of debt, then qualifying may not be an issue; subject to the usual tests around creditworthiness, income stability and earnings. If your situation is not ideal, it doesn’t mean you can’t refinance. Fortunately, as mortgage professionals, we have access to a variety of lenders and can offer a variety of options.
However, like many financial decisions, you need to look at the big picture. Here’s what you need to know.
A refinance alters the terms and conditions of your mortgage; specifically, you are increasing the amount of your mortgage or your amortization. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm.
Here are some reasons to refinance:
- Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
- You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property.
- You could also take out some of the equity for investment purposes — an option that many homeowners consider this time of year as they look ahead to the new year.
- And there are more uses for your equity such as helping put your children through school.
Remember, yours is a unique situation and needs a tailored solution. We can help. We have access to traditional and alternative lenders – some with less stringent qualification guidelines.
If you are considering any of the above options, we will help find you a mortgage product that fits your needs, and do it quickly and professionally. To get approved, call us today!