Mortgage Refinancing for your Future: Getting Financially Healthy for the New Year
With the new year approaching, we often take stock of the past year and look forward to a fresh new year. For many people that involves some new year’s resolutions that often include: exercise more, eat less, quit smoking and for some of us budget our spending a little better which often includes mortgage refinancing.
Many of us find ourselves in a position with paying for our children’s education, planned renovations, unexpected expenses or growing credit card debt. You are not alone. According to the Globe and Mail in September 2017, reported that about one in six of us will refinance our mortgage this year. Refinancing your Mortgage is often a way to reduce your monthly payments and overall interest costs. However, you and your family will benefit from professional advice to ensure you will not pick the wrong financing or worse a higher interest rate or penalties to refinance your mortgage or debts.
As young families develop and change, so do their financial position and needs. The average family refinances their mortgage every three years. Every family should consider refinancing for their future, especially in today’s environment where real estate is at the epicenter of a family’s financial plan.
The current interest rate environment and frothy real estate market can present both exciting opportunities and dangerous risks that need to be considered. Families need to have a sound financial plan and continuously adapt their plan to their changing needs and the changing real estate market. To do this successfully, individuals should understand the importance of a financial plan and what refinancing can do for their family.
Importance of Real Estate in a Financial Plan
For almost all families, the home is their largest asset and expense. In Toronto alone, the average family spends around 46% of their annual household income on mortgage payments. As such, it only makes sense that a family’s financing on their home is at the center of their financial plan. Mortgage payments and property taxes have the potential to limit a family’s disposable income and must be considered when budgeting for other expenses, such as groceries, clothing, and car payments.
Building a realistic financial plan around mortgage expenses allows families to plan for unexpected financial expenses and ensure they can withstand economic distress. In good times, managing a financial plan appropriately ensures families are only paying what they need to and might free up extra money for things that matter most in life, like taking off to spend time with loved ones or simply living comfortably and stress free. If families qualify for cheaper mortgages, they can lower mortgage payments and take advantage of this freed up capital.
Benefits of Mortgage Refinancing: Interest Payments
As mortgages are long-term in nature, families with dated mortgages might have higher interest rates than necessary. With interest rates at record lows, families can typically refinance their mortgage at a lower rate than before simply due to the changing interest rate environment. Other changes in the family’s dynamic might also warrant lower available interest rates, such as progressive increases in income or an increase in credit score. Both signals tell lenders that the borrower has a stronger ability to pay off debt, and decreases the lender’s risk. Families can take advantage of these economic successes and use them to pay less on their mortgages.
While refinancing a high-interest mortgage might increase the duration of the loan, it can significantly reduce your mortgage payment and free up funds for home renovation, saving for retirement, or saving for a child’s education, among many other possibilities. Paying higher interest rates than necessary wastes money that families should have access to. Families have unlimited ways in which they can put the excess cash to beneficial use and should always consult a mortgage professional to determine whether they can benefit out of refinancing their home.
Benefits of Mortgage Refinancing: Mortgage Length and Types of Rates
In the event that a family cannot achieve a lower interest rate than what they are currently paying, there are other benefits to refinancing a home. There are many expenses such as a child’s education or addition to the house that may be better financed by re-financing your mortgage than taking out a separate line of credit. If a family’s household income increases, one can remortgage to shorten the duration of the loan and pay off the mortgage quicker. This strategy allows families to achieve financial freedom sooner, but should be executed with caution as too much debt can be detrimental in the long run. If no significant increases in income are expected and lower interest rates are not available, families have the option of refinancing their mortgage to be a longer duration. This allows for the payments to be more spread out over time, reducing the monthly payment and allowing for extra saving or spending today.
Besides altering the duration of a mortgage, families can also gain from refinancing by changing the type of interest rates they receive. In today’s low interest rate environment, there is movement from the Bank of Canada to increase rates consistently, at least in the short term. This means that variable rate mortgages may become costlier over time and can leave families in distress if they do not plan for the changes ahead of time. This is a risk that many families face, but it can be mitigated when refinancing a variable-rate mortgage into a fixed rate mortgage. It is important to be aware of the conversion costs associated with changing the type of rate.
There are many alternatives and options to consider when looking at refinancing your home that are most suited for your family.
Gerard Buckley – Licensed Mortgage Agent and Certified Reverse Mortgage Specialist with many years of banking and financing experience @jaguarmortgages and jaguarmortgages.ca would be pleased to assist you and your family consider your alternatives. You can also visit Gerard at his Facebook Page to find out more about connecting with his professional advice.
You can be assured that Gerard will treat your Mortgage Refinancing and Real Estate Decision like it is his own.
Please Call Gerard at 866-496-4028 or 705-532-1182 for a complementary consultation.