Refinancing can be an excellent way to put the equity in your home to work for you, and there are many different reasons you may want to consider accessing your equity to help put you in a better spot financially.
- If you have a significant amount of equity in your home but you have high interest rates on your other debts, such as credit cards, lines of credit or car loans.
- If you are looking to make a large purchase such as buying another property or investing into your business.
- To save money in interest if rates have decreased since you got your mortgage.
- To lower your monthly mortgage payment by extending the amortization on your mortgage at your renewal date.
You are only able to access up to 80 percent of the current value of your home. To calculate the maximum amount you would be eligible for, subtract what you still owe on the property from 80 percent of what your property is worth. There may also be mortgage prepayment fees to consider depending on when you decide to refinance.
Below is a typical example of an overall financial scenario that we often see in our mortgage consultations:
|Amount Owing||Interest Rate||Interest Paid Per Year||Monthly Payment|
|Line of Credit||$20,000||7%||$1400||$300|
What Can Refinancing Do?
In the above example, your monthly payments would total $2466 - which means you would be paying a whopping $13,400 in just interest per year. Assuming your home is currently worth $400,000 and you are able to refinance at 3.19% (the current market rate):
- You would be able to access up to $70,000 in equity to pay off your credit card, line of credit and auto loan.
- You would save a total of $3192 per year in interest.
- Your monthly payments would drop from $2466 to just $1378, saving you a total of $1088 per month.
It is important to note that sometimes refinancing simply doesn’t make sense, which is why it’s important to have a professional look at the numbers for you. They can calculate the money saved against the penalties incurred on your behalf, and recommend alternative options if the numbers don’t work out.
We offer free consultations, so even if you are considering refinancing and you are not ready to move forward - we can help. Simply contact our office and we can schedule a meeting at a time that is most convenient for you.
*Please note that refinancing is subject to approved credit and additional application requirements. The above example is meant to represent a general refinancing scenario and your individual application may differ.