Mortgage Refinancing Considerations
“Things To Consider When Contemplating A Mortgage Refinancing In 2011”
When considering a mortgage refinancing, we first need to look at the reasons for a mortgage refinance action and the goals that you are trying to accomplish by doing so.
The primary reasons for refinancing an existing mortgage include 1) current mortgage holder wants to be paid out for some reason and you have to retire the existing mortgage as a result; 2) you want to increase the amount of borrowing against your home; 3) you want to secure a lower rate mortgage; 5) you want to adjust your payment schedule; 5) some combination of all these points.
The specific objectives for mortgage refinancing will allow you to more quickly focus on the lenders and mortgage programs capable of meeting your requirements.
Prepayment penalties can be significant and potentially make the exercise of refinancing non cost effective when you look at the cost of either getting more capital and/or getting the a lower interest rate.
If a prepayment penalty is going to be invoked by a potential mortgage refinance, then the next step is to do the math to see exactly what your cost for breaking the existing mortgage is versus the incremental benefit you will receive in lower rates, higher mortgage advance, etc.
There can be other costs that you need to consider, depending on the type of property you have and the type of new mortgage you are trying to secure.
For instance, a commercial mortgage can require a commercial appraisal, environmental report, and third party accountant prepared financial statements, which can significantly increase the outlay of costs necessary to get a new mortgage in place.
If the new mortgage is from a private mortgage lender, there are likely going to be lender and broker fees that will have to be paid out of the mortgage proceeds.
At the very least, there is going to be legal costs required to register a new mortgage if the lender or the mortgage amount changes.
So, before proceeding too far, make sure you clearly understand the cost/benefit equation related to your particular situation.
If the costs are in line with moving forward, then the focus shifts more to the rates and terms of competitive offerings available to you in the market.
The amount of financing required will also be a key consideration if you are looking at higher loan to value ratios.
In the spring of 2011, the mortgage regulations changed whereby mortgage refinancing through banks and other institutional lenders was reduced from 90% to 85%. This can become the key limiting factor in a mortgage refinancing decision when a high loan to value ratio is required.
With respect to rates, which may be the biggest single factor in your decision making process, there is the age old question of fixed versus variable.
More and more people have been moving to variable rates in the last few years, but with variable rate discounts being reduced and fixed mortgage rates expected to drop further in the near term, there still should be some serious consideration at any point in time as to which type of rate will work best for you.
Each mortgage refinancing scenario can having many, many variables to consider.
The best way to approach any mortgage refinancing exercise is to work with an experienced mortgage broker who can not only help identify the key areas of concern and focus, but get you working with the most relevant lending programs saving time, and potentially money by not missing deadlines or signing up for a mortgage that isn’t the best available fit for your needs.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel