If you’re a homeowner in Canada, you may have heard people talk about “refinancing their mortgage”. But what does this mean, and how do you go about doing it?
What is mortgage refinancing?
Mortgage refinancing is the process of paying off your current mortgage with a new mortgage. This new mortgage typically has different terms and conditions, including an interest rate, payment schedule, and repayment period. There are two main reasons why homeowners choose to refinance their mortgage: to save money or to access equity.
Saving money through mortgage refinancing
The most common reason for refinancing a mortgage is to save money. If you can secure a lower interest rate than what you’re currently paying, you can reduce your monthly mortgage payments and save thousands of dollars over the life of your mortgage. This can be particularly helpful if you’re looking to free up some extra cash for other expenses.
Accessing equity through mortgage refinancing
If you have built up equity in your home, you may be able to take advantage of that equity by refinancing your mortgage. This can be done in a couple of ways:
- Cash-out refinancing: This involves taking out a new mortgage that’s larger than your existing one, and using the extra funds to access the equity in your home. You’ll receive the difference between the new mortgage and the current mortgage in cash, which you can use for things like home improvements, debt consolidation, or other expenses.
- Home equity line of credit (HELOC): This is a revolving line of credit that’s secured by your home equity. With a HELOC, you can borrow money as needed up to a certain limit, and you only pay interest on the amount you borrow. This can be a good option if you need access to funds over a long period of time.
Both of these options allow you to access equity in your home, but it’s important to carefully consider the costs and risks associated with refinancing your mortgage before you make a decision. Refinancing can involve fees and closing costs, and if you take out a larger mortgage or borrow against your home equity, you may be putting your home at risk if you can’t make your payments.