You know by now that your monthly mortgage payments go toward two things: the principal of the loan itself and the interest rate attached to it by the lender. If you are in a fixed-rate mortgage, you also know that you are responsible for a set interest rate to be paid each month. Many homeowners find that they want to renegotiate the terms of their mortgages, including the interest rate, but they do not want to wait until the mortgage actually expires. This is where refinancing can be incredibly handy.
This is especially true if you have been keeping an eye on the ever-fluctuating interest rates of the Canadian housing market. You might want to take advantage of rates that have plummeted since you initially took out your mortgage. When interest rates are relatively low, you can pay less each month or pay more toward the principal of your loan, allowing you to save a tremendous sum over time.
In this article, we will explain the benefits of refinancing, as they pertain to interest rates.
The Interest Rate on a Second Mortgage vs Refinancing
There is one big perk of refinancing that you may not have yet thought of: You get to access your home’s equity. Upon the renegotiation of your mortgage, you will be able to access what you have already paid toward the total value of your home. This seems like a pretty sweet deal, especially considering the added benefit of paying less in interest each month.
Second mortgages in Canada do allow homeowners to access their equity as well, but typically at a much higher interest rate than they signed on for with their initial mortgage. The first and second mortgages must be repaid in tandem, which is often an out-of-reach requirement for homeowners pursuing a second mortgage. (more can be found Here.
The Costs Associated with Refinancing a Mortgage
The refinancing of a home occurs at a cost, so it helps to know what you will be on the hook for if you choose this route. The types of fees you will be responsible will depend on whether you are refinancing at the end of your mortgage’s term or at the end of it.
If you are switching lenders as a part of refinancing your mortgage, you will have to pay a discharging fee to your current lender. This totals around $300 in most cases.
Prepayment Penalty Fee
If you are choosing to break your mortgage before it is up for renewal, your lender will charge you a fee for doing so. The amount you’ll have to pay will either be three months’ worth of interest rates or the mortgage rate’s differential. You’ll have to pay whichever amount is larger.
Real estate attorneys are an essential part of refinancing a mortgage loan. The attorney will handle all communications between yourself and your lender, for a charge of roughly $1,000.
Mortgage Registration Fee
When you renegotiate your mortgage, new terms are defined. This necessitates the purpose of registering the new mortgage agreement. This is a relatively small expense of around $100.
If your circumstances are agreeable to the ones outlined above, refinancing your mortgage could be a very wise way to save money on interest while accessing your home’s accrued equity.