A refinance should improve your financial position. Otherwise, why do it?
Refinancing can lower borrowing costs, improve monthly cash flow, consolidate expensive debt or give you access to the equity you've built in your home. But refinancing isn't automatically the right decision.
Before making a change, I look at the cost of your existing mortgage, any penalties involved, your available equity, your debts and what you're trying to accomplish. Then we run the numbers.
What does refinancing actually mean?
Refinancing means replacing or restructuring your existing mortgage to change one or more parts of it.
- Access home equity
- Consolidate higher-interest debt
- Lower the mortgage rate
- Reduce monthly payments
- Finance renovations
- Purchase an investment property
- Access funds for another financial purpose
- Restructure the mortgage as circumstances change
The important question isn't “Can I refinance?” It's “Should I?”
Accessing equity isn't the goal. Improving your financial position is.
Before I recommend a refinance, I want to know what it actually accomplishes.
- Current mortgage balance, rate, remaining term and payment
- Mortgage penalty and transaction costs
- Other debts and interest rates
- Available home equity
- New mortgage structure and payment
- Total borrowing cost
- Cash-flow improvement
- Longer-term objectives
Sometimes the numbers clearly support refinancing. Sometimes they don't. If leaving your mortgage exactly where it is makes more financial sense, I'll tell you that too.
Debt consolidation
Your mortgage may carry a much lower rate than credit cards, unsecured lines of credit and other consumer debt. Using home equity to consolidate those debts can reduce borrowing costs and required monthly payments. But lowering the payment is not enough. If short-term debt is simply moved into a 25- or 30-year mortgage without a repayment strategy, the debt can cost more over time. Debt consolidation needs a strategy - not just a lower payment.
Home equity
Home equity may provide access to capital at a lower borrowing cost than many other forms of credit. Depending on the circumstances, it can support renovations, investment property, debt consolidation, business purposes, major expenses or cash-flow restructuring. Accessing equity isn't the goal. Improving your financial position is.
Still locked into a higher mortgage rate?
You may not have to wait until renewal. Depending on your mortgage, it may be possible to move to a lower rate before the end of your current term. We compare the penalty and transaction costs against the potential interest and payment savings. If the savings do not justify the cost, you stay where you are. If they do, it may be worth making the change.
When I would NOT recommend refinancing
- The penalty outweighs the potential savings.
- The new structure substantially increases long-term borrowing cost without a compelling reason.
- Debt is being consolidated without a realistic repayment plan.
- Equity is being accessed for spending that does not improve the financial position.
- The property may be sold shortly.
- The existing mortgage has valuable features worth keeping.
- There is simply no meaningful financial advantage to making a change.
Sometimes the best mortgage advice is to leave your mortgage alone.
Do you offer straight mortgage transfers at renewal?
My practice focuses on refinances, equity take-outs and mortgage transactions where additional funds are being advanced. I generally don't arrange straight lender-to-lender transfers at renewal when no new funds are required.
There's a practical reason for this. Existing lenders have become extremely aggressive about retaining their mortgage clients. We can spend considerable time reviewing the mortgage, collecting documents, completing an application, obtaining an approval and preparing a transfer - only for the existing lender to make a significantly better retention offer just before closing.
When that happens, staying with the existing lender can absolutely be the right decision for the homeowner. I would never recommend that a client turn down a better option simply because we've already done the work.
For that reason, I focus my time on mortgage situations where I can provide greater strategic value - refinancing, accessing home equity, consolidating debt, restructuring cash flow, investment financing and other transactions involving additional funds.
If your mortgage is coming up for renewal and you'd like to access equity or restructure your mortgage at the same time, I'd be happy to review it with you.
Not sure where to start?
You don't need to know which mortgage product you need before we talk. That's my job.
