Wondering if this is the right time to refinance a mortgage? You’re not alone. Rising costs and challenging economic conditions have nudged many Ontario homeowners to consider refinancing as part of a sound financial strategy.
To explore the topic with some expert input, we spoke to Meridian’s Mike Healy, MBA, Regional Manager, Mobile Mortgage Sales, who notes that, “Many of our Members have used refinancing as a pathway to regain financial stability by lowering their overall borrowing costs.”
When you refinance a mortgage, you have the potential to create lower monthly payments, pay off your mortgage faster, or tap into the equity in your home. Let’s look at when and how it might make sense for you.
Meridian Mortgage expert Mike Healy, MBA, Regional Manager, Mobile Mortgage Sales
When would I refinance my mortgage?
When you refinance, you'll replace your existing mortgage with a new one. You’ll have a “clean slate” opportunity to negotiate different rates, terms, or conditions, according to your needs and plans.
This flexibility can help you take control of your financial well-being. Healy says refinancing “can be a great way for our Members to harness the power of strategic financial planning in times of economic uncertainty.”
Here are a few occasions when it may make sense to refinance a mortgage:
- A home renovation is calling. Maybe you need to make room for a growing family or want to enhance your work-at-home space? Tapping into the equity in your home can give you the financial flexibility to move forward.
- You’re facing a large expense. Maybe you need to replace your roof in a hurry, or maybe your condo board has announced plans for costly electrical work? Your home’s equity can help to fund large, one-time expenses.
- It’s time to consolidate debt. If you’re struggling to keep up with high-interest loan payments, refinancing can allow you to resolve your debt and pay it off at a lower rate.
- Mortgage rates are falling. When interest rates drop, a refinanced mortgage may allow you to take advantage of lower rates, which could help you pay your mortgage faster or lower your monthly payments.
- The end of your mortgage is in sight. Given that mortgages have different features and options, changing to a mortgage with better prepayment privileges could help you pay off your home faster.
- Your financial outlook is changing. Depending on interest rates, your risk tolerance, and your circumstances, you could use refinancing to switch between fixed and variable rate mortgages.
No matter your goals, Healy notes that refinancing is “a flexible, proven financial strategy for both short and long-term planning, one that has helped many Members navigate the complexities of rising costs and inflation.”
Next, let’s dive into some of the opportunities and potential costs when you refinance a mortgage.
The potential impacts and possible costs
It’s easy to see why refinancing is appealing to a wide range of mortgage holders, especially those interested in accessing the investment they’ve made in their home.
“Tapping into your home’s equity allows you to consolidate debt, reduce your monthly payments, and ultimately get your finances back on track,” says Healy.
Still, refinancing isn’t the answer for everyone. Here are a few things to keep in mind when you refinance a mortgage:
- You can apply to refinance a mortgage at any point, but the ideal time is often when your mortgage is up for renewal, to avoid penalties and fees
- To ensure associated costs are justified, secure a favourable interest rate or reduce overall payments by paying down high-interest debt and including it in the refinance
- Depending on the details of your mortgage, if you’re close to the end of your term, you may be able to avoid prepayment charges
How much can I borrow through refinancing?
The answer depends on your home’s estimated value and the size of your current mortgage. In most cases in Ontario, you can borrow up to 80% of your home’s current value, minus the value of your current mortgage.
Here’s an example:
| Estimated home value | Maximum amount you could borrow - 80% | Minus the amount of money owing on the mortgage | How much you could borrow |
|---|---|---|---|
| $400,000 | $320,000 | $150,000 | $170,000 |
Meridian’s Home Equity Line of Credit: A popular alternative to refinancing
In addition to conventional refinancing, Meridian Members can borrow up to 80% of their home's value through a Home Equity Line of Credit (HELOC), which can provide access to cash for expenses such as tuition, a once-in-a-lifetime vacation, or household repairs.
With a HELOC, you borrow against the equity in your home, which means you get a competitive interest rate and, typically, doesn’t require that you break your current mortgage.
In summary: The pros and cons of mortgage refinancing
Pros
- Lower borrowing costs: You may have the chance to lock in lower rates or a shorter term.
- Debt consolidation: You could consolidate outstanding debt and pay it off at a lower interest rate.
- Access to your home’s equity: You might borrow against your home and pay the money back through a new mortgage.
Cons
- Fees or penalties: You could incur costs such as appraisal fees, application fees, closing costs, and more.
- Longer loan term: If you extend the term of your loan, you might end up paying more interest over the duration of the mortgage.
- Reduction in equity: If you refinance to access the equity in your home, you will reduce the equity you have in your home, at least for the short term.
Here to support you
If you’re ready to refinance a mortgage, there's plenty to think about.
At Meridian, our Mortgage Specialists will take the time to understand your circumstances, your short-term needs, and your financial goals. They’ll help you find the mortgage solution that fits you best.
To speak with one of our mortgage experts, simply book a meeting with us.
Learn more about mortgage refinancing
Should you renew or refinance?
