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Residential Mortgage Refinancing

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Associate Lawyers

Jagmohan Singh Nanda
Jagmohan Singh Nanda
Justin Chun Ting Lo
Justin Chun Ting Lo

Being a home buyer can help to grow your home equity, build credit and invest in assets for your future. Understanding mortgages are important whether this is your first home mortgage or you are a matured homeowner.

At the time of buying your first home, you may have got mortgage rates and terms which were high or not very favourable. Guess, what? There is no need to stay locked in with those interest rates and less than ideal terms and conditions.

Refinancing a mortgage allows you to secure more favorable loan terms and conditions those were not available to you the first time. In simple terms, refinancing your mortgage means paying off your existing mortgage in full and taking an entirely new loan.

For many homeowners, refinancing their mortgage can leave more money in their hands, resulting in higher savings and lower duration for paying back the mortgage.

Reasons for Refinance Your Mortgage

Canadian homeowners have different reasons to opt for refinancing their residential mortgage.

Favourable Interest Rates

An opportunity to lock in lower interest rates is one of the primary reasons why many homeowners consider refinancing their mortgage. Refinancing mortgage may be a financially desirable option even after payment of prepayment penalties and fees for breaking the mortgage contract before the agreed duration.

Economic Uncertainty

If the economic situation is relatively uncertain with rising interest rates, many Canadians choose to lock in a lower longer-term rate. They may do so by anticipating higher interest rates in the future.

Debt Consolidation

For many Canadians who are struggling to keep up with multiple loans, different payment terms and interest rates, getting their mortgage refinanced can help.

They can consolidate all their debts into one long-term loan and maintain a single interest rate. Debt consolidation helps in managing multiple loans and their differing terms and conditions. Credit card debts, auto loan, lines of credit can all be rolled into one mortgage once refinancing is done.

Access to Home Equity

As mortgage payments are made, the home equity increases gradually. The value of home equity will be the value of your home’s market price deducted by the outstanding mortgage.

Mortgage refinance allows you to access your home equity and use it as per your requirements. You can use the home equity to make investments, pay for your or your children’s education or renovate your home.

How to Refinance a Residential Mortgage

Refinancing can seem to be complicated at first glance. Taking the support of trusted mortgage professionals and doing due diligence can help you in navigating the refinancing process successfully.

Market Evaluation

Refinancing will make economic sense only if the terms and conditions secured in the new mortgage are more favorable than the current one. Evaluating the market for interest rates, the duration of the mortgage, payment terms will help in zeroing on the right lender and the circumstance.

Start the Application

Applying for a mortgage refinance is similar to applying for a first time mortgage. Working with experienced and reliable mortgage professionals can help in compiling and submitting the application form and necessary documents timely for review.

Research Around

Mortgages are of many types and should be decided based on your needs for refinancing and the specific financial situation. Fixed rate mortgages allow for consistent monthly payments and interest rates throughout the duration of the mortgage. In adjustable mortgage rates, the interest rate and the payment amounts can be fluctuating.

The third type of mortgage is the combination rate mortgage which has features of both fixed and adjustable interest rates. You should carefully analyze the features of the mortgage and its applicability to your specific situation before taking the final call.

Complete the Documentation

Identifying the documents required and compiling them as per the timelines is essential. Make sure you ask for the mortgage refinance checklist and put your documents in the same order to avoid any delays in processing. Pay stubs, tax documents and subsidy statements are some of the documents which may be required to be submitted with the mortgage refinance application.

Close the Transaction

Even after all the advance planning and professional help, the actual mortgage refinance process may not be as favorable as you would have been expecting. Do make note of the fees, costs and legal expenses which would be involved in the process and the net effect should be favourable for your specific circumstance.

Spending time in due diligence, calculating the interest rate differential and considering the pros and cons will help you in making an informed decision.

Property Insurance

Lenders will consider doing mortgage financing only once the property insurance has been taken. To understand the right amount of property insurance, four factors need to be considered.

Mortgage balance

The mortgage balance is the amount of loan money outstanding on your property. The lender considers this amount to be the value of your property.

Market value

Market Value is the amount any purchaser would pay to purchase the property when seller and buyer both are not under any emergency to conduct the transaction.

Replacement cost

The Replacement cost refers to the dollar value which would be needed to rebuild your home in the specific locality of your home. This value is important from the insurance view point as this is the amount which your home would be insured for.

Actual Cash Value

The actual cash value is the depreciated value which is the cost to repair the house today deducted by the depreciation amount.

Using a guaranteed replacement cost endorsement is advisable if the mortgage balance is less than the replacement cost of your home. You can consider this in all cases where you own your property with a clear title.

In case, your property is more than 20 years old and new building codes have been introduced, you can consider an endorsement to your policy. This endorsement typically covers the cost of rebuilding to meet the higher standards.

Tax Implications of Mortgage Financing

Mortgage interest payments do not qualify for tax deductions. They are eligible for a deduction only if the home is generating income from being rented out.

If you run a small business from your home, many business expenses can be deducted but the interest on mortgage cannot be deducted.

How We Can Help

At Nanda & Associate Lawyers, our experienced Real Estate lawyers understand your specific circumstances and provide tailored and customized solutions for each of them.

Our Mississauga Real Estate Lawyers are available for a no-obligation free consultation. Come and experience our quality legal counsel and personalized care we give to each client. We ensure prompt communication and a professional approach to achieve successful outcomes for you.

Feel comfortable interacting with our caring team who speak more than 15 languages like English, French, Spanish, Italian, Portuguese, Albanian, Hindi, Punjabi, Kannada, Telugu, Tamil, Bengali and much more.

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