Also known as an “Equity Take-Out “.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 2nd place line of credit, or 2nd 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 perhaps an appraisal cost 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 80% of your house value. There are specialty products that can go up to 95% of your home value in certain scenarios. Talk to the Mortgagegirl to explore all the options available to you.
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:
2nd Place Line of Credit:
A line of credit is secured against your house in 2nd place. Meaning if you ever sell your house, first your mortgage gets paid out, then your 2nd place line of credit, then you get the profits. The benefits of a 2nd 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.
Many lenders are hesitant to fund 2nd mortgages as they are viewed as being a higher risk. If for some reason your equity decreases, say due to market conditions, the 2nd mortgage company is the 2nd one to get paid out in the event of a sale. A 2ndmortgage 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 2nd mortgage terms are 12-24 months long, so in 1-2 years you will have to pay off that 2nd mortgage with either a new 2ndmortgage or refinance your first mortgage to include it. If you are thinking about a 2nd 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.OAC E&OE