4 signs it's time to refinance your mortgage

The days of record-low interest rates are almost behind us and you’re probably wondering what the impending rate hikes will mean for you and your current mortgage. With inflation and prices rising across the board, you’re likely seeing your monthly expenses inch higher, too. If you’re looking for ways to access additional funds, pay down some debt or lock in a lower rate while they’re still available, it might be time to consider refinancing your mortgage.

A mortgage refinance occurs when a homeowner breaks their mortgage before the end of their term (such as year three of their five-year term) to secure a new one. Or, if at the end of their term, they decide to change their mortgage, such as by borrowing more or increasing their amortization period. This can be done with your current, or a different one altogether. Most homeowners will look to refinance for any of the following reasons:

To lower your mortgage payments

With prices of fuel and food rising, you have likely noticed a spike in your monthly household spending and are trying to budget better as a result. One way to take the burden off your monthly expenses is through a mortgage refinance. Doing this allows you to change the terms of your mortgage contract and increase the length of your amortization, which can help to lower your monthly mortgage payments.

For example, let’s say you have 14 years left on your mortgage with a balance of $593,000 remaining. If you want to lower your monthly mortgage payments, you can simply increase your amortization to 25 years. At a 3.7 per cent fixed rate, this will reduce your payments from $4,527.87 to $3,032.68. This saves you $1,495.19 per month and increases the amount of interest you pay over the remainder of your mortgage term.

To consolidate debt

After two years of a pandemic and the inflationary outlook ahead, we know that life is both unpredictable and expensive. If you or your partner experienced a job loss and have debts piled up, you’re not alone. If you’re paying into a mortgage every month, it’s important to remember how multi-faceted it is and how it can be used to help us achieve various goals, including paying down debt. Through a refinance specifically, you can combine your mortgage with other major debts into one secured loan that makes up to 80 per cent of your home’s value.

If you find yourself with high-interest loans such as credit card debt or personal loans, debt consolidation through a mortgage refinance gives you an opportunity to budget better and pay down your debt faster at a much lower interest rate. This can also lower your monthly payments substantially and make it easier for you to pay your debts on time and in full, and thus improve your credit score.
to lock in a lower interest rate

The days of record low interest rates appear to be ending, so if you’re looking to break your mortgage and refinance, it’s a good idea to do it sooner rather than later. If interest rates have dropped since you first bought your home, you may want to consider a refinance to lock in a better rate. However, before you make any sudden moves, you’ll want to revisit your mortgage contract and see if breaking your mortgage will result in any prepayment penalties.

To borrow funds

If you’re looking to borrow funds – whether it’s to pay off lingering expenses or even use the equity to invest in another property – but want to do so at a much lower interest rate, a mortgage refinance could be a great way to do this. Refinancing allows you to access up to 80 per cent of your home’s appraised value in cash, giving you the flexibility to borrow additional funds without the black cloud of a 19.99 per cent interest rate from your credit card.

Pro tip: Be sure to shop around for the best mortgage option

When it comes to refinancing your mortgage, the best thing you can do is shop around to get a feel for what different lenders are offering. Although it is possible to refinance with your existing lender, at Homewise, we always encourage homeowners to explore their options.