When Is It Time to Refinance Your Edmonton Home?

Refinance Edmonton Home

There really is no perfect time to refinance your home. The answer depends entirely on why you want to refinance your home and whether or not you are financially prepared to do so.

Refinancing your mortgage is a serious and long-term commitment. It should not be entered into lightly.

For this reason, The Mortgage Force team wants to ensure that you understand what it takes to refinance your Edmonton home. This way, you can make an informed decision that benefits both you and your finances.

Ready to get started? Let’s start with five important you should ask yourself before signing the dotted line.

1. Do I Need a Loan?

Before you contact a lender about refinancing your home, it’s important to determine whether or not you have a good reason to apply for a loan.

For example, a good reason would be if you are planning to renovate your home as this would increase the value of your property.

Other good reasons include:

  • Funding your child’s education
  • Starting a new business venture
  • Buying a new property
  • Consolidating debts
  • Lowering interest rates

Borrowing against your home is a temporary solution, but also an opportunity to build good credit history. If done properly, it can improve your financial situation in the long run.

2. Is Refinancing My Home My Best Option?

While the lower interest rates that come with mortgage refinancing are beneficial, they don’t apply to all applicants in all situations.

This is why you should explore all possible options and research the current value of your property as well as regional market rates.

You may find that while refinancing is a good option, now is not the best time. Speak to a mortgage professional who can give you an evaluation of market conditions and help you decide if refinancing is your best option.

3. Can I Afford the Monthly Payments?

Young Caucasian family having debt problems, not able to pay out their loan

The amount you can borrow depends on the appraised value of your home and the remainder of your current mortgage. You can only receive a loan that amounts to a maximum of 80% of your home’s appraised value. Add in new interest rates, mortgage insurance, and administrative fees and you’ll have your owing amount.

This is why it’s important to ask yourself how much you can afford to borrow because you will have to work the monthly payments into your budget. At this point, it may be worth considering whether you urgently need the money or if you can take the time to save for what you need.

4. What is My Credit Score?

Getting approved for a loan application all comes down to your credit score. Lenders look at your credit history to see how good you are at handling money and making monthly payments.

Those with low credit scores are considered high-risk borrowers and may have their applications turned away. If their applications are approved, they will likely face higher interest rates.

If your credit score is low, take the time to fix it before applying for mortgage refinancing. You can even speak to mortgage specialists about ways to improve your credit.

5. What Are My Refinancing Options?

If you have answered the questions and are ready to refinance your Edmonton home, it’s time to look at your refinancing options.

Depending on your situation, your lender may offer you one of the following:

  • Second Mortgage: This is a second loan you can secure using your home’s equity but you have to pay off the new mortgage as well as the original one.
  • Home Equity Line of Credit (HELOC): This works like a typical line of credit but is secured by your property. You can withdraw and repay funds as needed.
  • Prepayments: If you made prepayments on your mortgage, you may be able to re-borrow a portion of those payments from your lender.
  • Reverse Mortgage: If you are at least 55 years of age, you may qualify for a reverse mortgage.

When it comes to mortgages, your lender can also offer you different terms and interest rates such as a fixed-rate mortgage, a variable-rate mortgage, or a combined rate mortgage.

A fixed-rate mortgage means that you will pay the same monthly payment and interest rate throughout your mortgage term. Variable-rate mortgages can fluctuate your mortgage payments depending on market conditions. A combined rate mortgage includes both fixed and adjustable rates.

How to Refinance Your Edmonton Home

Once you have covered all of your bases and have decided that refinancing your Edmonton home is the right step for you, it’s time to contact a mortgage specialist!

You could approach lenders on your own but a mortgage professional can help you gather all of the necessary documentation to ensure the application process is completed properly. They may also represent you to lenders by submitting your application on your behalf.

Once your application is submitted, the lender will evaluate it and determine whether or not you qualify to refinance your home. At this point, it’s important to read and review the terms and conditions of the loan agreement, paying close attention to interest rates and other costs. Be sure to ask for clarification before agreeing to their terms.

It may be possible to negotiate lower interest fees with the help of a mortgage specialist. Any reduction in interest will help you properly budget for payments, additional fees, and upfront costs.

Refinancing Your Edmonton Home

There are a variety of reasons why Canadians choose to purchase their own home. Some want the stability of owning their home while others wish to use their home as an investment vehicle.

Home-ownership has proven to be a stable long-term investment. Recently, there has been a large movement to refinance home mortgages and use equity for home improvements, college expenses, and other investments.

Overall, mortgage lending is the cheapest form of borrowing. Our expert mortgage specialists can help you unlock up to 80% of your home’s value and convert that into usable funds to reach your financial goals.

Book your appointment today to speak to one of our mortgage professionals!

Breaking Down Your Down Payment Options

mortgage payment options

If you feel unclear about what your down payment options are and how mortgage default insurance comes into play, you are likely not alone. When buying a home in Canada, mortgage default insurance premiums are impacted by the percentage of your downpayment and the purchase price of your desired home. Many people are not aware of the pros and cons of different down payment options or the purchase price tipping points that affect the requirements. So let’s break it down.

Down Payment Options

Many savvy potential homeowners carefully save, invest and manage their money with the goal of having a 20% down payment to purchase a new – or new to them – home. Since the amount of your mortgage decreases the higher your down payment is, this is a desirable goal for many homebuyers. The benefits include smaller monthly payments, more immediate equity in your home, and exemption from paying an insurance premium of up to 4% interest.

This insurance premium is required in Canada for down payments less than 20% for any mortgage and the borrower pays for these premiums in full at the commencement of their mortgage payments. Mortgage default premiums may be provided by any one of the three national insurance providers: the Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty, or Genworth Financial.

The percentage you pay on the mandatory default insurance depends on the size of your down payment. For example:

 

Your Down Payment % Your Mortgage Default Insurance Premium
5% Down Payment 4.0%
10% Down Payment 3.1%
15% Down Payment 2.8%
20% Down Payment 0%

 

Although the 20% down payment is attractive to avoid paying mortgage default insurance, there are some reasons why it may not be ideal for all home buyers.

Mortgage default insurance premiums ultimately exist to protect the lender, but there are benefits for homebuyers as well. These premiums entice lenders to provide lower mortgage rates because the risk is assumed by the mortgage insurer if the borrower defaults on their mortgage payments. It also can benefit homebuyers when the real estate market would be inaccessible for them if more than a 5% down payment were required to get into a home. When housing costs are on the rise, this can be a reality for many people.

Purchase Price Requirements

Does purchase price impact the minimum down payment requirement in Canada? Yes, it does and one dollar can make all the difference.  The magic number for a minimum 5% down payment is a purchase price of $500,000. Once you exceed this price, everything changes. A purchase price of $500,001 and beyond triggers new mandatory minimum down payment criteria for home buyers:

Your Purchase Price   Your Minimum Down Payment
$500, 000 or less 5%
$500, 001 – $999, 999 5% on the first 500,000 + 10% on the remaining portion
$1,000,000+ 20% of purchase price + no insurance premiums allowed

Being aware of these criteria when shopping around for your next home is an important consideration. This is especially true when considering properties around and above the $500, 000 or $999, 999 thresholds where $1 can make all the difference in what is required for your down payment.

What Else Do I Need to Know? 

There are many financial details that can impact your down payment options and ultimately what your mortgage will look like in the short term and long term. Homebuyers in Edmonton, Alberta have the advantage of not having additional PST costs to consider, but there are many additional costs and requirements to factor in including:

  • The 25 years maximum amortization period requirement
  • Debt Service Ratios
  • Credit Scores
  • Closing costs
  • Potential home inspection fees
  • Repairs, improvements, and appliance upgrades

These elements and more will impact mortgage qualification, down payment options, and the potential necessary cash flow to make your transition into a new home as ideal as possible. Homebuyers who are provided with a clear picture of all costs associated with buying a home feel more empowered to make informed decisions. They also experience a lot less disappointment along the way.

It is always ideal to discuss your options for the purchase price, down payment, and additional costs with a mortgage specialist. You want to ensure you are getting the optimal solution for your mortgage needs both immediately and into the future.

Our experts at Mortgage Force Team are licensed, dedicated, and passionate professionals committed to this goal every day. Purchasing a home is one of the most exciting and important

decisions you can make. We work for you and with you so you can fully understand all the options and what makes sense for your unique situation.

 Talk with us for free today to find your best mortgage solution.