Mortgage Refinance - A mortgage or home loan is a contract describing the agreement between a borrower and a lender. Mortgages can come in many different shapes and forms. Mortgages can be conceptualized as a charge against Real Estate.A mortgage product can vary in length of time and the interest rate can be fixed or variable. A fixed mortgage will have an interest rate that is not subject to change in amount or time. Variable or adjustable mortgages have a rate of interest that varies, usually according to another interest rate such as the Bank of Canada Prime Rate.
Mortgages can be used to purchase property. Mortgage finance can also be used to consolidate debt at a lower rate – debt consolidation. The mortgage product is traditionally either fixed or variable, but in recent times some lenders have allowed borrowers to split or compartmentalize their mortgages into more than one type of loan, all secured by home equity.
Therefore assuming a $300,000.00 home equity loan, one could have $100,000.00 on a fixed, $100,000.00 on a variable, and $100,000.00 on a secured line of credit. Secured line of credit or home equity line of credit, HELOC, has become a popular adjustable home mortgage.
Refinancing often involves paying off of an existing high-interest loan by means of new lower-interest credit. When refinancing the existing lender will charge a penalty for breaking the mortgage contract and this is known as the payout penalty. The existing lender is very likely to charge a client regardless of brand loyalty, mortgage payment history, or if they refinance is funded with them again when you stay at the same bank. Mortgage agreements usually stipulate the greater of a three month interest penalty or the interest rate differential. That’s why you need to understand mortgage refinancing.
With the uncertainty of job loss racing through many homeowners’ minds these days, taking a proactive approach to this issue by putting mortgage payments aside while you’re still actively employed can help set your mind at ease. It’s a wise move to set money aside each pay period so you can accumulate six to 12 months’ worth of mortgage payments in a short-term GIC as security for a possible job loss.
Planning for the future and potential job loss is one of the most important undertakings homeowners can make to ensure you can pay your mortgage in uncertain times. And, best of all, if your job remains secure, you can take the money out of your GIC and make a pre-payment back on your mortgage on your anniversary date (or whenever your prepayment options permit you to do so), which can end up saving you thousands of dollars in interest payments and trim down the amount of time it will take to pay off your mortgage. This will also help protect your credit.
But if it’s not plausible to save money each pay period, refinancing to access the equity you’ve already built up in your home is another valid option for planning ahead in uncertain times. In addition to freeing up money to store future mortgage payments in a GIC, some of the money can also be used to pay off high-interest debt – such as credit cards – and get you off to a fresh financial start. You will find that taking equity out of your home to pay off high-interest debt can put more money in your bank account each month.
And since interest rates are at historic lows, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year. There are often penalties associated with paying your mortgage loan out prior to renewal, but these could be offset by the extra money you save through a refinance.