Buying a home is a big purchase and comes with a hefty price tag. To pay for it, most people take out a mortgage. A mortgage is a large loan from a financial institution that comes with its own costs in the form of interest rates. It is vital to get a mortgage with a low interest rate. However, if you find yourself paying more for your mortgage than you’d like, you can refinance it for a lower rate.
Refinancing your mortgage in Toronto is essentially paying off your current mortgage and taking out a new one. However, the new mortgage often comes with some attractive bonuses, such as a low interest rate. Refinancing can also allow homeowners to access the equity they have built up in their house.
When to Refinance
Refinancing is not the best option for every homeowner, which is why it’s important to discuss your options with a mortgage professional. Here are some of the reasons that you may want to consider refinancing:
- Need cash
- Switch from an adjustable rate mortgage to a fixed rate one
- Lower your monthly payments
- Pay off your mortgage faster
Options for Mortgage Refinance
There are a few different options when it comes to getting your mortgage refinanced. They include:
- Rate and term refinance. This type of refinancing includes a change in the interest rate, terms of the loan, or both. Homeowners looking to get a lower interest rate will often opt for this type of refinancing. Those looking to reduce the term of their mortgage and, in turn, cut back on the monthly cost of their mortgage will also apply for a rate and term mortgage refinance.
- Cash-out refinance. Homeowners that want to access the equity in their home will opt for a cash-out refinance. It is the opposite of a rate and term refinance. In this instance, the homeowner takes out a new mortgage on their home. They will also get the cash equivalent of the equity in their home. However, most lenders will require that you have at least 20 percent equity in your home.
How to Refinance
There are a number of steps to take if you want to refinance your mortgage:
- Know why you want to refinance your mortgage. Ask yourself what you hope to gain before you determine if refinancing is the best choice for you.
- Discover your credit rate. Knowing what your credit score is can give you leverage with lenders. The higher your rate, the better the interest rates and terms you’ll be able to get.
- Research mortgage options. Have a look at several different mortgage options at various lenders until you find one that works for you.
- Select a new lender and make an application. This step includes gathering and submitting necessary documentation such as pay stubs, tax returns, and bank statements.
- Prepare for closing and payment fees. This is the final step that secures your interest rate and terms for your new mortgage.