Pre-term mortgage refinancing

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What is a pre-mortgage refinance?

When you get a mortgage to buy your home, that mortgage is set for a period of time called the mortgage term.

When the mortgage term ends, you will need to

  • renew your mortgage
  • or pay off the remaining balance.

You refinance before the end of your mortgage when you want to take out equity to finance one of your projects.

Why refinance your home before the end of your mortgage?

There are 8 reasons why you will need to refinance your home mortgage before the end of your mortgage:

A change in interest rates

When the interest rate drops

It may be worthwhile to refinance your home before the mortgage term when there is a drop in the interest rate. If at the time of closing you had a high rate and in the meantime the rate has been lowered, you can refinance your home to take advantage of the new mortgage rate and still get out of equity.

Secure an attractive interest rate before rates rise

Refinancing your property before a mortgage rate increase can also be interesting because it allows you to secure a more advantageous interest rate. However, this is not the primary purpose of a mortgage refinance. In fact, the whole point of refinancing your home is to get out of equity.

Increase the amortization period to lower your monthly payments and withdraw cash

By refinancing your mortgage, you can change the amortization period and free up cash.

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A change in your personal or family situation

A change in your personal or family situation such as a divorce or job loss is a valid reason to refinance your property in order to free up funds, pay legal fees, personal debts.

Financing work in your home

By taking out a home improvement loan, you benefit from a lower interest rate than a regular credit card or loan, or a personal line of credit.

This type of financing is recommended if you are thinking of doing more extensive renovations and the repayment of this loan is done over a longer period.

For example, if you decide to refinance your home, it is possible to obtain an amount for your renovations based on your current mortgage balance. It is possible to obtain a refinancing up to 80% of the value of your property (fair market value).

Make financial investments to prepare for retirement (RSP, TFSA, stock market shares…)

Refinancing your home also allows you to invest in your RSP. By freeing up funds through refinancing your home, you will get a tax deduction. This option should be evaluated beforehand.

It is also possible to use mortgage refinancing to prepare for retirement.

Many products exist to do so, it is important to take measures when you are in professional activity, do not forget that to obtain a mortgage loan, employment income is essential, waiting for your pension and no longer having the income can limit the options. It is therefore important to get advice from a broker beforehand.

Financing a major purchase

If you are considering purchasing a second property such as an income property (duplex, triplex etc…) or even a second home such as a cottage, then it is possible to generate your down payment by refinancing. With a mortgage refinance, you can re-borrow up to 80% of the fair market value of your property, it will then be necessary to subtract the balance of your outstanding mortgage loan from the new loan amount. This would be like refinancing to take out equity that you could use for a down payment on your second home or a down payment on your cottage.

You will then pay off the new mortgage, which is the total amount including the additional amount. But in some cases, the two loans are separated into separate tranches.

Financing your children’s education

Refinancing your home also allows you to free up funds to finance your children’s education. A practical solution given the high cost of education.

Pay off credit cards or high interest loans to reduce overall monthly payments

If you are paying off credit cards or loans at high interest rates, mortgage refinancing allows you to consolidate your debts at a fraction of the interest rate. This would help you reduce the amount of your monthly debt payments.

Obtaining a mortgage line of credit

Pre-term mortgage refinancing can also be a good opportunity to obtain a home equity line of credit.

By paying off a portion of your mortgage principal, you free up a borrowing limit on a line of credit that is secured by the value of your home. This mechanism allows you to finance projects such as renovating your home or buying a cottage, for example.

When should I do a mortgage refinance?

The best time to refinance your property depends on your situation and your needs.

The best times to refinance your home may be when you want to:

  • buy a second home or a cottage
  • carry out renovations
  • consolidate your debts
  • financing your retirement
  • pay for your children’s education
  • invest in a new project
  • start your business
  • a need for liquidity
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How to get the best rate on your refinance?

In order to get the best rate for your pre-mortgage refinancing, we recommend that you use a mortgage broker who can help you get the best rates on the market today. Our brokers are there to accompany you throughout the process!

But first, it is imperative to have a good credit rating to make your file attractive to financial lenders.

How much does a pre-mortgage refinance cost?

Mortgage refinancing fees

When you wish to refinance your property, you will have to pay certain costs, including notary fees and administrative costs.

If you refinance early , you may be subject to penalties.

Penalties for a mortgage refinancing before term

The main cost of refinancing your property before the end of your mortgage term is the cost of mortgage penalties. You are charged a penalty when you make a change to your mortgage agreement. In Canada, lenders calculate this penalty either by 3 months ofinterest or by the interest rate differential.

How to avoid paying a mortgage penalty?

If you are thinking of refinancing your mortgage before the end of your term, we recommend that you minimize the amount of your penalties by using the pre-payment options established by your lender, which allow you to invest a lump sum on the amount of your mortgage to be paid each year or increase your monthly payment. By doing so, you can reduce your mortgage and the amount of your penalty.

A change in interest rates

When you refinance your property, you renegotiate your mortgage. This means that you will benefit from a new interest rate from the first payment after you sign your mortgage refinance.

Questions to ask yourself before refinancing your mortgage

Are you able to do a pre-term refinance?

Before refinancing before the end of your term, make sure you have the financial capacity to pay the penalties. We advise you to be accompanied by a mortgage broker.

Will you have to pay a penalty?

Lenders may extend the term of your mortgage before the end of your term. In this case, you will not have to pay a prepayment penalty.

Renew your mortgage or refinance your mortgage?

We invite you to contact our mortgage brokers who will help you make your choice.

Pre-term mortgage refinancing: FAQ

Can you renew a mortgage before 5 years

Generally, you must renew your mortgage at the end of each term, which varies from a few months to 5 years.

If you renew your property early, you will have to pay penalties unless you renew 6 months before your term.

Have you considered getting a home equity line of credit?

Obtaining a mortgage line of credit may be a good option for you if you are refinancing your mortgage early . Talk to our mortgage brokers!

How can you pay off your mortgage faster?

To pay off your mortgage faster, you can:

  • accelerate your mortgage payments
  • increase your monthly payments
  • make a lump sum payment
  • reduce the amortization period

How does a mortgage refinance work?

Step 1: Assess your borrowing capacity

You can borrow up to 80% of the market value of your home. However, a lender’s evaluation of your borrowing capacity will confirm the value and amount of the maximum loan that can be granted to you.

Step 2: Calculate the value of your property

In order to determine the equity in your home, you need to determine the value of your home in the current market, determine your mortgage balance and subtract your balance from the current value of your home.

Step 3: Choose the best mortgage option with your broker

Use a mortgage broker who will help you find the best mortgage solution for your needs.

Step 4: Go to the notary

To finalize your mortgage refinancing before the end of the term, you must go through a notary. The notary fees for a mortgage refinance vary on average between $800 and $1200.

Make an appointment with our team to guide you and get personalized advice to improve your credit rating.

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