Category Archives for Mortgage Refinance
Residential Mortgage Rate Averaging
“Here’s Another Strategy To Consider When Looking To Protect Against Higher Residential Mortgage Interest Rates”
One of the challenges with trying to lock in a long term interest rate when you already have one in place is that the prepayment penalty associated with paying out the existing mortgage with a new mortgage is cost prohibitive in many cases.
This is because most mortgages charge an interest differential penalty that calculates the difference in the current rates versus your existing mortgage rates times the amount of time left in your existing mortgage term (the math is a bit more involved, but what I’ve described above provides the basic idea).
Just from a logical point of view, this type of penalty does make some sense as the mortgage lender had to acquire the funds from somewhere in order to provide you with a mortgage. Those funds came at a cost, and the mortgage lender needs to maintain a margin between their own cost of money and the interest rate they loaned the money out at. If they didn’t do this, every time borrowers wanted to move to a lower interest rate, the lender would lose their shirt as they would still need to pay the same original cost of financing on the money they borrowed, but would not be able to re-lend it out at the same rate that your original residential mortgage was written at due to the fact that rates are now lower.
Conversely, as rates rise, the interest differential calculation will drop as the gap between the current rate and your existing mortgage rate will narrow.
So if I’ve totally confused you, I apologize. All you really need to understand is that if you are locked into a higher interest rate term on your existing mortgage, you’re likely going to have to pay a penalty for paying out the existing mortgage early if the current market rates are lower than your mortgage rate.
So other than paying the prepayment penalty, what else can you do to lock in a lower long term interest rate?
One strategy is to ask your mortgage lender if they have any mortgage rate averaging or blending programs available. These programs, which can fall under a variety of names, essentially take your current mortgage term and average it with their posted long term rates to come up with a combined rate that is lower than what you’re paying now and can be locked in for years into the future, depending on the length of time you pick.
Under this type of strategy, you’re undergoing rate averaging, not mortgage refinancing.
The net effect is that you still end up paying the interest owing for the remainder of your current mortgage term, but get to take advantage of the existing lower term rates for the future period you’ve chosen without having to shell out any cash in the form of a prepayment penalty.
Expect Mortgage Rates To Rise in 2010
While the economic recovery is still ongoing, signs from our neighbors to the south indicate that the Fed will be increasing the U.S. based lending rate in the near future.
Canada is expected to follow suit, which will likely see our prime rate go up somewhere between half a percent and one percent over the next 3 to 4 months.
While there is no guarantee of exactly what will happen or when it will happen, the probability is strong that a rate rise could be soon upon us.
At the same time, financial forecasters are not predicting large increases for the rest of the year, but the pattern to upward movements in interest rates now appears imminent as the economic recovery strengthens.
For mortgage holders with floating interest rates, this may be a good time to review your longer term options and consider locking up the current historically low rate levels available for 3 to 5 year terms.
For those of you contemplating mortgage refinancing or debt consolidation, there is still a great opportunity to take advantage of the low rates that have now been in place for the better part of two years.
One of the key things to remember with low interest rates is that when rates are low, small increases can have big impacts on your cash flow.
As an example, a one percent increase in interest rates may not seem like much, but if you’re currently carrying a mortgage with a variable interest rate of 2.25%, a 1.0% increase just saw your total interest payment increase 45%. And if you’re repayment is based on a long term repayment amortization, your overall monthly payment has also increased at least 40%.
While the current low rates have allowed many Canadians the ability to afford getting a first home or upgrading to a larger on, now is the time to look at making sure you’re going to be able to cash flow repayment well into the future by considering locking in the great long term rates we have available today.
If you’d like to discuss long term mortgage rate options or even a mortgage refinancing scenario, then I would suggest you give me a call and I’ll make sure you get all your questions answered.
Refinance Mortgage When It Makes Sense
In Canada, the interest rates for new mortgages has never been better going into 2010, so you’d think that the refinance mortgage process designed to secure lower rates would also be most appropriate at this time.
While this could very well be the case, current interest rates are not the only elements that can dictate the ideal time to refinance.
The reality of the refinancing process is that it should only be undertaken if there is a positive economic benefit in doing so. And just because current interest rates are at record low levels doesn’t guarantee such a benefit.
Situations where the refinance mortgage process does likely make a lot of sense is when the mortgage holder currently is working with a floating rate or has a fixed term rate that is near maturity. In these situations, the borrower is able to avoid or minimize the most expensive aspect of mortgage refinancing and that’s a prepayment penalty incurred from paying out the existing mortgage by the newly created mortgage.
On the flip side, mortgages with fixed term interest rates where substantial time is left on the fixed interest period can make the process of refinancing completely uneconomical. That being said, a significant prepayment penalty does not automatically mean that there is no ability to save money through the refinance process.
The calculation to determine the related economic benefit needs to includes the costs of refinancing as well as the cost savings generated by a new mortgage over the time of the chosen interest term. If the overall math works out, then a refinance process would make sense to complete. If the math doesn’t provide a positive result, then other scenarios should likely be considered.
Fixed interest rates can be considerable based on the way they are calculated. Lenders are required to lock in their sources of funds prior to extending a fix interest rate offering. So if a borrower pays out a fixed term mortgage before completion of the term, the penalty serves to cover the cost and profit the lender would have received if the mortgage went to term.
Most residential mortgage prepayment penalties are the higher of 3 months interest penalty or interest differential, which calculates the difference between the existing fixed term mortgage rate and the lenders posted interest rate for the same period of time. This is why the prepayment penalty, in many cases, can eliminate most or all of the benefit of the refinance mortgage process.
The key to determining what makes the most sense for a given situation is to work through your options with a mortgage broker. To that point, I would recommend that give me a call so that we can work through your options together and determine your best course of action.
Click Here To Speak Directly To Mortgage Broker and Mortgage Refinancing Expert Joe Walsh
Why Not Get Mortgage Refinancing Advise?
“Mortgage Refinancing Advice Can Potentially Benefit You In Several Ways”
As a mortgage broker, I’m definitely biased towards the value a mortgage broker can bring to the mortgage refinancing process. Whether you give me a call or speak with one of my colleagues, I highly recommend speaking with a licensed broker when seeking mortgage refinancing advise.
In most cases, the use of a mortgage broker does not cost you anything, so getting some professional help for free is something you should take advantage of.
Here are some other things to consider.
First, the mortgage market in general has a large number of lenders with a variety of different programs. For any one mortgage refinancing scenario there can be more potential options than any one person can locate and research on their own. With the help of a mortgage broker, you can quickly zero in on the lending programs most relevant to your situation and eliminate everything else in the process. This can not only be a big time saver, but can help you locate and secure a mortgage program you may not have been able to find on your own.
Second, remember that the process of refinancing pays out and retires your original mortgage(s) and creates a new mortgage with potentially different terms and conditions. So regardless of your motivation for refinancing, getting mortgage refinancing advice from a broker can result in potential adjustments to the terms and conditions in your new mortgage that you may not have thought of on your own.
Third, its always a good idea to work through the costs of refinancing versus the expected benefit to see if refinancing will in fact provide you with the result you’re looking for. Because mortgage brokers deal with the process and related costs every day, it makes good sense to go through everything with your broker to make sure everything adds up and supports the decision to refinance.
Fourth, some refinancing actions can require greater levels of coordination and administration to get everything in place. Part of a mortgage broker’s service is to help you manage all the requirements to complete the refinancing so that everything gets done in a timely fashion without incurring unnecessary costs.
So whether you’re trying to secure a lower interest rate, consolidate debt, or seeking additional funds for a home renovation, find a mortgage broker you’re comfortable and take advantage of the free mortgage refinancing advice that’s available to you.
Click Here To Speak Directly With Mortgage Broker And Refinancing Expert Joe Walsh
Home Mortgage Refinancing Process
“When Is It The Best Time To Refinance Your Mortgage?”
With interest rates still sitting at near record lows, consumers are always wondering if they opt for home mortgage refinancing.
Many home owners with variable rate mortgages have already locked into longer terms due to the fact that the cost of refinancing is negligible when no prepayment costs are involved.
At the same time, there are still many variable rate holders that are taking advantage of the low open mortgage rates and will likely continue to do so until rates go up. Some of these individuals may even be waiting to see if there is a further drop before even considering locking in longer term.
And what do you do when you have a fixed term mortgage that does carry a prepayment penalty when the existing mortgage is paid out prior to the end of the interest term?
The possible scenarios that you can consider are almost endless.
And remember that there is no one best approach. Choosing an interest term has everything to do with your own risk tolerance and your view of how you see the economy moving in the future.
When considering going through a home refinancing process, there are a few things to keep in mind.
First, make sure that you have all the facts related to your existing mortgage with respect to the existing interest term, prepayment penalties, and conversion options. If you have a fixed term mortgage, ask your mortgage lender to provide you with a calculation of the prepayment penalty so that you have something official to go by.
Second, review the existing market rates and related interest terms to gain a good understanding of what’s available to you with a new mortgage. Remember that rates will continually fluctuate in the market and among lenders, so any exercise you go through today will have to be updated in the future to reflect potential rate changes.
Third, and perhaps most important, go through the potential scenarios you are interested and calculate the projected benefit to see what makes the most sense with respect to your beliefs regarding rate movements in the future and the current costs associated with paying out your existing mortgage and getting a new one in place. In the end, this is a dollars and cents exercise with the goal to save money in your financing costs over time.
The best way to approach the home mortgage refinancing process is to give myself or another mortgage broker a call to answer all your questions and to go through different scenarios with you. This is definitely a case where a mortgage broker can add a great deal of value to your decision making process and help you come up with a plan of action you’re coming to be satisfied with for years to come.
Click Here To Speak With Mortgage Broker, and Refinancing Expert, Joe Walsh
Why Refinance A Canadian Mortgage?
“Understanding Mortgage Refinancing Logic”
First, to clarify, the most common form of mortgage refinancing involves paying out an existing mortgage with the funds provided by a newly created mortgage now registered against the same property.
The new mortgage can be for a greater amount than the previous mortgage. The additional funds can be used for almost any purpose. Just remember that there will need to be sufficient equity in the property to allow for an approval of the higher mortgage amount.
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At the time of writing in January of 2010, mortgage rates are at or near record lows with the potential for rate increases from this point forward more likely than further interest rate drops. So one of the main reasons for mortgage refinancing is to secure a lower interest rate that will allow you to reduce your interest costs over time. The decision to do so is driven by the economic benefit of paying less interest.
Another main reason for mortgage refinance is to consolidate debt. In this situation, the new mortgage will be approved for a larger amount than the old mortgage being paid out and the additional funds acquired will be used to pay down other debts that the borrower holds.
The key benefits of this refinancing action is that the weighted average interest rate of the collective debt will be reduced and debt repayment will be spread out over a longer period of time.
Mortgage refinance related to consolidating debts is a powerful method to eliminate costly short term consumer financing that can drain available cash flow and destroy personal credit.
While debt consolidation is by far the biggest reason for securing additional funds through refinancing, there are many other uses of funds that can motivate a home owner to refinance their mortgage.
This is not meant to be an exhaustive list, but other uses of additional funds are for such activities as investing in a stock portfolio, financing the acquisition of investment property, financing your educational costs or those of a family member, home renovations, mortgage consolidation of two or more mortgages registered against the same property, and so on.
As the equity in your home grows, so does your potential access to funds for a wide variety of purposes.
To make sure that you’re getting the best value out of your mortgage for the least amount of cost, I recommend that you give me a call at least once a year so that we can review your mortgage against the market to see if there are any opportunities to lower your cost of borrowing and/or improve your repayment terms. And if you’ve got other financing requirements that could benefit from a Canadian mortgage refinancing, we can certainly discuss those as well.
Click Here To Speak With Joe Walsh, Mortgage Refinancing Specialist
Canadian Mortgage Refinancing
“Getting The Most Out of Your Canadian Mortgage Refinancing Efforts”
A Canadian Mortgage Refinancing typically occurs in one of the following circumstances: debt consolidation opportunities and periods of interest rate decline.
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The primary goal in both cases is to lower the cost of borrowing and to also potentially improve monthly cash flow.
To get immediate assistance with your mortgage refinancing needs, click here to speak to mortgage refinancing specialist, Joe Walsh.
There can be instances when, based on timing, both debt consolidation and total debt reduction can both be achieved together, although this has more to do with chance than any planning or strategy you try to follow.
While there are more situations where mortgage refinancing can occur, the two mentioned above are the most common and will be the focus of this discussion.
In the case of debt consolidation, the mortgage or mortgages registered on a property are combined with a specified amount of outstanding debt (typically unsecured debt from credit cards and term loans) to form a new mortgage that will be registered against the property.
The new mortgage will be completely rewritten and will have its own terms and conditions relevant to the lender and the time it was put into place.
The amount of refinancing that is possible will depend on the amount of equity that exists in the target property, the strength of borrower credit, and the strength of borrower repayment, similar to what you would expect in an application for mortgage for a new home purchase.
When all or part of the refinancing motivation is to take advantage of lower interest rates in the market place, the opportunity and benefit of refinancing your mortgage is based on the projected cost savings of the action minus the related costs of breaking or paying out the existing mortgage.
The costs associated with breaking an existing mortgage can include lawyer fees for removing the old mortgage registration and adding the new one, appraisal fees for a third party to provide an up to date market assessment of the property, and prepayment penalties written into the terms and conditions of the mortgage.
The most significant of the potential costs is the prepayment penalty. If you are are trying to refinance a mortgage that has a fixed interest term, then there will be a penalty associated with not keeping the mortgage until the end of the term. If you have an open or floating interest rate, you can refinance the mortgage without any form of repayment penalty.
There are numerous mortgage programs available for the purposes of refinancing either for debt consolidation or just interest rate reduction. Each mortgage program will have different pros and cons to consider and some will be more relevant to your situation than others.
The best way to assure your mortgage refinancing efforts land the best potential deal is to give me a call so that I can quickly assess your situation and review the best available options relevant to your situation with you.
Click Here To Contact Joe Walsh, Your Canadian Mortgage Refinancing Expert