Benefit From Mortgage Refinancing
Mortgage Refinancing means to pay in full and discharge a current mortgage and replace it with a new one. The equity built up in your home can be a powerful financial planning tool. Through refinancing your house, you can access this equity to consolidate debt, pay for home improvements, take off cash or invest in your future or future of your children. When a new mortgage is larger than the pre-existing, it is called ‘equity take-out’.
If you are considering refinancing your house, you will need to review your existing financial situation and mortgage options thoroughly. Potential short-term gains, such as lower monthly payments, should align with your long-term goals. With many financial planning exercises, one size does not fit all. We hope our Mortgage Refinancing Guide will help you navigate through this maze.
These are the most common reasons for Mortgage Refinancing:
- Debt Consolidation – since mortgage rates are generally lower than other forms of borrowing, you can use the equity in your home to pay in full high interest/high payment debts such as credit cards.
- Home renovations – the equity in your home can be used to finance home improvements, which can potentially increase your home value.
- Second property – by leveraging your home equity, you could purchase an investment or vacation property.
- Investments – the equity in your home can be reinvested in other investments, such as mutual funds or stocks. In fact, depending on your investments and circumstances, a portion of the interest on your mortgage may be tax deductible.
- Education – you can refinance your home to fund education for your children, or for yourself, as an alternative to liquidating other investments or RRSP.
- Retirement planning – your home equity can also be used to make RRSP contributions. In many cases, the compounding benefits of long-term investments and tax deferrals could outweigh the penalty costs of discharging mortgage.
Depending on your situation, one of the following approaches may be considered:
– breaking your existing mortgage and applying for a new one,
– increasing amount of your existing mortgage with your current lender,
– taking a second mortgage,
– applying for a home equity secured line of credit.