Mortgage Refinance

If you have an existing mortgage and you would like to access some of your unused equity; that is a mortgage refinance. There are a couple of ways to go about accessing your equity. You can look at paying out your first mortgage and arranging a whole new first mortgage for a higher amount. This may involve a payout penalty from your existing mortgage lender. Or, you can leave your first mortgage as is, and look at a 2^nd place line of credit, or 2^nd place mortgage. This way you avoid a payout penalty from your existing lender. If you are thinking of paying our your existing mortgage, the first thing you should do is contact your existing lender to see what they will charge you to break your existing term. Next step is contact your favorite mortgage professional to come up with the perfect mortgage solution.

Frequently asked questions:

What will it cost to refinance my mortgage?

The biggest one is probably the payout penalty from your existing lender. This amount can be added to your new mortgage amount, or you can pay it out of pocket. The other costs associated with arranging the new mortgage are; legal fees to have the paperwork changed and an appraisal fee to confirm the value of your property. The legal fees can be deducted from your refinance proceeds, but the appraisal cost will likely have to come out of pocket.

Estimate of costs:

-Legal fees- $390- $600

-Appraisal fee- $225- $350

-Admin or discharge fees from existing lender- $250

How much of my house value can I borrow?

In Canada, the highest you can borrow up to is 95% of your house value. Keep in mind, anytime you borrow more than 80% of the value, you will have to pay an insurance premium. There is a little trick to how much high ratio insurance you will have to pay. If your mortgage was originally insured, you might not have to pay a premium on those already insured funds (some conditions apply).  For example, Blake bought his home in 2001 and he  had an original mortgage amount of $200,000. He has paid his mortgage down to $100,000 but now he needs another $150,000. He may only have to pay an insurance premium on the new funds of $50,000 as the amount of $200,000 has already been insured. This is only the case if your new mortgage is insured.

What are my options if I do not want to payout my first mortgage but I still want to access my unused equity?

When you want to leave your first mortgage alone, your options are a bit limited. The reason being is in order to access your unused equity, you will have to look at some kind of secondary financing. There are really only 2 types of secondary financing:

2^nd Place Line of Credit:

A line of credit is secured against your house in 2^nd place. Meaning if you ever sell your house, first your mortgage gets paid out, then your 2^nd place line of credit, then you get the profits. The benefits of a 2^nd place line of credit are that it is revolving and can be used repeatedly. It is also at a competitive interest rate and features interest only payments.  The one thing to be aware of about a line of credit is that it may report to your credit bureau. So if you are fully utilizing the balance of the line of credit, it may affect your credit score.

2^nd Mortgage:

Many lenders are hesitant to fund 2^nd mortgages as they are viewed as being a higher risk. If for some reason your equity decreases, say due to market conditions, the 2^nd mortgage company is the 2^nd one to get paid out in the event of a sale. A 2^nd mortgage is a good idea if you need some short term money and you have an exit strategy to pay off that financing in the future. Most 2^nd mortgage terms are 12-24 months long, so in 1-2 years you will have to pay off that 2^nd mortgage with either a new 2^nd mortgage or refinance your first mortgage to include it. If you are thinking about a 2^nd mortgage, be prepared for higher rates and likely a fee.

Talk to your favorite mortgage professional for a custom mortgage solution!

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* This data is provided for information purposes only and is updated daily by Mortgagegirl. Posted rates are subject to change without notice. Rates are compounded semi-annually, and not in advance. OAC E&OE