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2 Jan

Is Your Mortgage Up For Renewal?

Mortgage Tips

Posted by: May Einarson

Mortgage Renewal Benefits.

Is your mortgage coming up for renewal? Do you know about all the incredible options renewing your mortgage can afford you? If not, we have all the details here on how to make your mortgage renewal work for you as we start to think about 2024.

Get a Better Rate

Are you aware that when you receive notice that your mortgage is coming up for renewal, this is the best time to shop around for a more favourable interest rate? At renewal time, it is easy to shop around or switch lenders for a preferable interest rate as it doesn’t break your mortgage. With interest rates expected to come down as we move into the New Year, taking some time to reach out to me and shopping the market could help save you money!

Consolidate Debt

Renewal time is also a great time to take a look at your existing debt and determine whether or not you want to consolidate it onto your mortgage. For some, this means consolidating your holiday credit card debt into your mortgage, for others it could be car loans, education, etc. Regardless of the type of debt, consolidating into your mortgage allows for one easy payment instead of juggling multiple loans. Plus, in most cases, the interest rate on your mortgage is less than you would be charged with credit card companies.

Start on that Reno

Do you have projects around the house you’ve been dying to get started on? Renewal time is a great opportunity for you to look at utilizing some of your home equity to help with home renovations so you can finally have that dream kitchen, updated bathroom, OR you can even utilize it to purchase a vacation property!

Change Your Mortgage Product

Are you not happy with your existing mortgage product? Perhaps you’re finding that your variable-rate or adjustable-rate mortgages are fluctuating too much and you want to lock in! Alternatively, maybe you want to switch to variable as interest rates start to level out. You can also utilize your renewal time to take advantage of a different payment or amortization schedule to help pay off your mortgage faster!

Change Your Lender

Not happy with your current lender? Perhaps a different bank has a lower rate or a mortgage product with terms that better suit your needs. A mortgage renewal is a great time to switch to a different bank or credit union to ensure that you are getting the value you want out of your mortgage if you are finding that your needs are not currently being met.

Regardless of how you feel about your current mortgage and what changes you may want to make, if your mortgage is coming up for renewal or is ready for renewal, please don’t hesitate to reach out to a DLC Mortgage Expert today! We’d be happy to discuss your situation and review any changes that would be beneficial for you to reach your goals; from shopping for new rates or utilizing that equity! Plus, we can help you find the best option for where you are at in your life now and help you to ensure future financial success.

 

Published by My Marketing Team

27 Nov

Is Your Financial Game on Point?

General

Posted by: May Einarson

20 Jan

Good News on the Inflation Front in December

General

Posted by: May Einarson

Canadian Inflation Pressures Ease in December

good news on the inflation front in december

The Consumer Price Index (CPI) rose 6.3% year over year in December, down from the 6.8% pace in November. Much of the decline was owing to the drop in gasoline prices. Additional deceleration came from homeowners’ replacement costs, fuel oil and other owned accommodation expenses, and various durable goods. Slower price growth was offset by increases in mortgage interest cost, clothing and footwear and personal care supplies and equipment.

Excluding food and energy, prices rose 5.3% yearly last month, down only 0.1% from a gain of 5.4% in November.
The global slowdown and surging Covid cases in China contributed to the decline in crude oil prices, depressing the price of gasoline and fuel oil.

Easing supply chain pressures, lower shipping costs, and softer demand contributed to the slowdown in the price inflation for appliances and furniture.

For the third month in a row, yearly price growth slowed for passenger vehicles (+7.2%), which may reflect slowing demand for used cars.

On a year-over-year basis, homeowners’ replacement cost (+4.7%) and other owned accommodation expenses (+2.5%) continued to slow as the housing market continued to cool, putting downward pressure on the CPI.

The mortgage interest cost index continued to put upward pressure on the CPI amid the ongoing higher interest rate environment, rising 18.0% yearly in December following a 14.5% increase in November.

Food price inflation remained high last month at 11% compared to 11.4% in November. Food price growth has hovered around 11% over the previous five months.

The core CPI metrics slowed (see chart below), but only inappreciably. Two key yearly measures tracked closely by the central bank — the so-called trim and median core rates — edged lower, averaging 5.15% from an upwardly revised 5.25% a month earlier. Economists were expecting a reading of 5.05%.

One significant concern of the Bank of Canada is inflation expectations that cause workers to demand higher wages and businesses to pass through higher costs on to the consumer. The Bank’s latest surveys show that consumer and business expectations of inflation remain elevated.

According to the Bank’s consumer survey, “Yet consumers are still concerned about inflation, and some are uncertain about the effectiveness of tightening monetary policy. More than three-quarters of people understand that the Bank aims to reduce inflation by raising interest rates. But the share of those who believe that increasing rates will lead to lower inflation remains small at around two-fifths of respondents.”  Consumers appear to believe that inflation will be at just over 5% two years from now, well above the 2% target.

 

Bottom Line

The dramatic monetary tightening in the past nine months has slowed headline inflation. The decline in December, however, was primarily due to seasonality and a significant drop in gasoline prices. Core inflation eased only marginally. Underlying price pressures remain sticky. The Bank of Canada will likely hike rates by another 25 bps at next week’s meeting. Beyond that, the Bank might pause, at least for a while, depending on the incoming data.

It won’t surprise me if they resume their tightening later this year. I do not expect any rate reductions in 2023.

Published by My Marketing Department and Chief Economist Sherry Cooper

Please Note: The source of this article is from SherryCooper.com/category/articles/
3 Oct

The Real Deal about Transfers and Switches.

Mortgage Tips

Posted by: May Einarson

The Real Deal about Transfers and Switches.

Most people who are thinking about a transfer or switch want to take advantage of a lower interest rate or to get a new mortgage product with terms that better suits their needs.

Up for Renewal?

If your mortgage is approaching renewal and you are considering a transfer or switch – great news! You won’t be charged a penalty. BUT you are still required to qualify at the current qualifying rate and need to consider potential costs around legal charges, appraisal fees and penalty fees (if applicable). In some cases, the lender will offer you the option to include these fees in your mortgage or even cover the costs for you.

Currently have a Collateral Charge Mortgage?

If you have a collateral charge mortgage (which secures your loan against collateral such as the property), these loans cannot be switched; they can only be registered or discharged. This means you would need to discharge the mortgage from your current lender (and pay any fees associated) before registering it with a new lender (and pay any fees associated).

Still locked into your Mortgage?

If you’re considering a transfer or switch in the middle of your mortgage term, you will likely incur a penalty for breaking that mortgage. Typically, transfers and switches are done to take advantage of a lower interest rate (and lower monthly payments), but you want to be confident that the penalty doesn’t outweigh the potential savings before moving ahead.

Things to consider for a transfer or switch:

  1. You may be required to pay fees associated with the transfer or switch, including possible admin and legal fees.
  2. You will need to requalify under the qualifying rate to show that you can carry the mortgage with the new lender.
  3. You will be required to submit documents that may include, but are not limited to, the following (depending on the lender):
  • Application and credit bureau
  • Verification of income and employment
  • Renewal or annual statement indicating mortgage number
  • Pre-Authorized Payment form accompanied by VOID cheque
  • Signed commitment
  • Confirmation of fire insurance is required
  • If LTV is above 80%, confirmation of valid CMHC, Sagen or Canada Guaranty insurance is required
  • Appraisal
  • Payout authorization form
  • Property tax bill

If your mortgage is currently up for renewal, consider reaching out to your DLC Mortgage Expert. Not only can they advise you of any penalties or fees that may be associated with your desired transfer or switch, but they also have the knowledge and ability to shop the market for you to find the best options to meet your needs. This extensive network of lender options allows brokers to ensure that you are not only getting the sharpest rate, but that the mortgage product and terms are suitable for you now – and in the future.

Created by My Marketing Team

24 Mar

The Credit Challenge

General

Posted by: May Einarson

The Credit Challenge.

For most people, credit score isn’t something you spend much time thinking about. Especially if you are someone who is making good money and paying all your bills on time. When you are in that boat, it feels pretty good! But, when you miss a payment or you struggle to pay all those credit cards, lines of credit and even your mortgage, it can feel like a sinking ship.

This is especially true if you’re credit challenged, but are looking to get into the housing market. Improving your credit is the best first step to getting a lender to give you a chance and fortunately, it is very doable!

why does credit score matter?

The reason your credit score is so important is because it tells lenders the basic story surrounding your credit. It essentially indicates whether or not you are a “good investment” by relaying how long you’ve had credit, your ability to pay back that credit and how much you currently owe. Your credit score is affected by how much debt you’re carrying in relation to limits, how many cards or tradelines you have and your history of repayment.

If you are considering getting your first mortgage, keep in mind that a credit score above 680 puts you in a good position to get financing, while a score below that will make it tough and improvement is needed.

CREDIT REPORTS

To ensure your credit score remains in good form, it is important to take a hard look at your credit report and review your credit score for any old or incorrect information. If you find any errors, contact Equifax to have them corrected or removed. Another big factor includes paying off any collections (such as parking tickets or overdue bills).

CONSIDER THE 2-2-2 RULE

If you’re a young person and new to the world of credit, consider the 2-2-2 rule to help build up your credit. Lenders typically like to see 2 forms of revolving credit (i.e. credit cards) with a limit of no less than $2,000 and a clean history of payment for 2 years.

It is important to note, a great credit score means keeping a balance on all those cards at any given time, below 30 percent of the overall limit. For a card with a limit of $2,000, this means having no more than $600 of it in use. It is also a good idea to check if your credit card requires an annual fee and make sure you are paying that off too.

If you’ve been advised to get a couple credit cards but have locked them in a vault where only a sorcerer’s spell can access them, you’re going down the wrong path. The goal is not just to have credit but to show potential lenders that you know how to use it responsibly!

rock bottom credit

When things get really bad, there is a tendency for clients to consider declaring bankruptcy or a consumer proposal. Bankruptcy is a legal process where an individual or entity can seek relief from some or all of their debts when unable to repay them. A consumer proposal is a formal, legally binding process to pay creditors a percentage of what is owed to them.

The truth is, it is best to avoid these two options. Instead, there are companies out there that will perform the same function with regards to negotiating your debts – but it won’t impact your credit or carry the stigma of bankruptcy or a consumer proposal.

CONSIDER REFINANCING

If you already own a home and have some equity, but you are still drowning in credit debt, consider refinancing your mortgage. While you might not get the same great rate you have now, or might get dinged for breaking your mortgage early, using the equity in your home can be a great way to get rid of high-interest credit card payments and consolidate debt to keep more money in your pocket at the end of the day.

keeping your score in-tact

Once you have your credit score where you want it, it is important to maintain that score. You can do this by ensuring you never use more than 30% of your available credit and that you pay your bills each month, and on time. Even if you can only pay the minimum amount due, it is important to be making those payments and recognizing the requirements.

Published by: My DLC Marketing Team

11 Feb

Staying Out of the Penalty Box

General

Posted by: May Einarson

Published by DLC Marketing Team

February 1, 2022

Staying Out of the Penalty Box.

When it comes to mortgages, it is easy to focus on the rates and your current situation, but the reality is that life happens and when it does, rates won’t be the only thing that matters.

First and foremost, the most important thing to remember is that a mortgage is a contract. That means that there is a penalty involved if the contract is ever broken. This is something that every homeowner agrees to when you sign mortgage paperwork, but it can be easy to forget – until you’re paying the price.

why break your mortgage?

You’re probably wondering why you would ever break your mortgage contract? Well, you might be surprised to find out that 6 out of 10 mortgages in Canada are broken within 3 years and there are typically nine common reasons that this happens:

  • Sale and purchase of a new home
  • To utilize equity
  • To pay off debt
  • Cohabitation, marriage and/or children
  • Divorce or separation
  • Major life events (illness, unemployment, death of a partner)
  • Removing someone from title
  • To get a lower interest rate
  • To pay off the mortgage

It is always important to think ahead when signing a mortgage agreement, but not everything can be planned for. In that event, it is important to understand the next steps if you do indeed need to break your mortgage.

calculating penalties

Typically, the penalty for breaking a mortgage is calculated in two different ways. Lenders generally use an Interest Rate Differential calculation or the sum of three months interest to determine the penalty. You will typically be assessed the greater of the two penalties, unless your contract states otherwise.

INTEREST RATE DIFFERENTIAL (IRD)

In Canada there is no one-size-fits-all rule for how the Interest Rate Differential (IRD) is calculated and it can vary greatly from lender to lender. This is due to the various comparison rates that are used.

However, typically the IRD is based on the following:

  • The amount remaining on the loan
  • The difference between the original mortgage interest rate you signed at and the current interest rate a lender can charge today

In this case, these penalties vary greatly as they are based on the borrower’s specific mortgage and the specific rates on the agreement, and in the market today. However, let’s assume you have a balance of $200,000 on your mortgage, an annual interest rate of 6%, 36 months remaining in your 5-year term and the current rate is 4%. This would mean an IRD penalty of $12,000 if you break the contract.

Ideally, you will want to be aware of what your IRD penalty would be before you decide to break your mortgage as it is not always the most viable option.

THREE MONTHS DIFFERENCE

In some cases, the penalty for breaking your mortgage is simply equivalent to three months of interest. Using the same example as above – balance of $200,000 on your mortgage, an annual interest rate of 6% – then three months interest would be a $3,000 penalty. A variable-rate mortgage is typically accompanied by only the three-month interest penalty.

paying the penalty

When it comes to making the payment, some lenders may allow you to add this penalty to your new mortgage balance (meaning you would pay interest on it). You can also pay your penalty up front.

Whenever possible, if you can wait out your current mortgage term before making a change to your mortgage, it is the best way to avoid being stuck in the penalty box. If you cannot avoid a penalty, do note that, while only calculators can be great tools for estimates, it is best to call your lender or mortgage broker directly for the accurate number in the case of determining penalties.

If you are interested in finding out more, please contact me directly at mayeinarson@dominionlending.ca or call 250-240-1503.

18 Aug

Are You Ready for Home Ownership?

General

Posted by: May Einarson

Are You Ready for Home Ownership?.

While most people know the main things they need to buy a home, such as stable employment and enough money for a down payment, there are a few other factors that may help you realize you’re ready – perhaps even earlier than you thought! In fact, there are four main things that can help you determine if you are ready for home ownership:

YOU CAN AFFORD YOUR DOWN PAYMENT AND ONGOING COSTS

It is easy for potential homeowners to get wrapped up in focusing on having enough money for the down payment and then forget about afterwards. It is important that you are not only financially able to afford the down payment, but that you can manage the monthly mortgage payments and ongoing maintenance as well. My Mortgage Toolbox app from Dominion Lending Centres has some great calculators to help you determine what you can afford on a monthly basis before you get in too deep. If you have enough funds in the bank for a down payment and are able to manage the monthly costs associated with the size and price range of home you would need, then you may be ready to start house-hunting!

YOU HAVE GOOD CREDIT

As most people know, credit score plays a major role in qualifying for financing to purchase a home. If you have a good credit score, which should now be at least 680 to qualify, then you have nothing to worry about! However, if your credit score is below this, it is more likely that you will be paying higher interest rates (and therefore have higher payments), or that you could be denied all-together. Before you begin your home buying journey, it is vital to have your credit score in order to ensure you can get the best mortgage product and rates. Working with a mortgage professional can help you get on the right track in the shortest time possible. Sometimes all that’s needed are a few subtle changes, or debt consolidation, to improve your credit score within a couple months.

NO OTHER LARGE, UPCOMING EXPENSES

Do you plan on buying two new vehicles in the next two years? Are you thinking of starting a family? Are you considering going back to school? Although you may think you can afford to purchase a home right now, it is vital to be honest about your future plans. What does your life look like in 1 year? 5 years? 10 years? If you know that you aren’t planning on incurring big expenses that you need to factor into your budget anytime soon, then that’s something that may help you decide to buy a home.

YOUR ARE DISCIPLINED

One of the most important factors for purchasing a home is budgeting. You have to know what you can afford – and stick with it! It is easy to be tempted by a gorgeous 6 bedroom home or a backyard pool or private community, but at what cost? If going all-in is going to leave you scrambling each paycheck or derail any plans of future financial stability, it is worth rethinking. Understanding what you NEED in a new home, versus what you WANT, is a good step towards determining what you’re looking for and planning a budget that suits your needs so that you can continue to live comfortably.

These are just four signs that you may be ready to purchase a home. If you’re seriously considering buying or selling, talking with a Dominion Lending Centres mortgage professional can help ensure you have the best experience when it comes to buying a home!

Published by: DLC Marketing Team

17 Jun

Moving On Up!

General

Posted by: May Einarson

Moving on UP!.

Life is constantly changing from your career to your family as we climb up the ladder of life. With these life changes, your current home may no longer be working for you. Whether you’re cramped in your tiny apartment or have a little one on the way, it may be time to look at moving on up!

Before considering the move to a larger home, there are some things to consider. For instance, whether or not you can afford to make the move and buy something bigger.

If you are wanting to upsize, and are doing so during your current mortgage cycle, you will be breaking the mortgage. As a result, you will have to go through the entire qualification process again. Keep in mind, there may be penalties depending on the term in your mortgage. Some are portable, which would make the transition smoother but you would need to check your mortgage agreement.

If you are unable to port your mortgage, you would need to re-qualify for a new mortgage. This would be done at the current rates offered by lenders and would be subject to government changes, including recent “stress test” rules.

If it has been a while since you bought your first home, you may be unfamiliar with the “stress test”. It was introduced in October 2016 for insured mortgages (down payments of less than 20%). Then, as of January 1, 2018 was updated to include all mortgages, regardless of down payment percentage. This test determines whether a homebuyer can afford their principal and interest payments, should interest rates increase. It is based on the 5-year benchmark rate from Bank of Canada or the customer’s mortgage interest rate plus 2% – whichever is higher.

The next thing to consider aside from re-qualifying, are fees and taxes. There may be large Property Transfer Taxes and you would also pay realtor fees on the sale of the home you are leaving behind. These fees are typically between 2-5% percent of the home’s selling price.

Beyond the costs associated with the sale of your current home and purchasing a larger residence, the costs of home ownership rise in proportion to the home you live in. If you are moving up from a condo or apartment to a single-family home, you will save on strata but will become responsible for all of the maintenance of your home. As a rule, it is best to save 1% of your new home’s purchase price, per year, for maintenance. For instance, if you purchase a $600,000 new home then you would want to ensure $6,000 a  year in savings.

Making the move to a larger home is both exciting and daunting! However, it is entirely doable with the right preparation! No matter what stage you are at with your home, a mortgage professional can help. Not only can they offer expert advice, but guidance as you move on up the property ladder. They also have your best interests at heart and will work to ensure future financial success so you can continue living the life of your dreams!

 

Published by DLC Marketing Team

15 Apr

Market Smarts: Home Buyers Guide

General

Posted by: May Einarson

Market Smarts: Home Buying Guide.

The Canada Mortgage and Housing Corporation (CMHC) is one of Canada’s three mortgage insurers. Beyond insuring mortgage, CMHC also offers consumer guidance in the form of a unique step-by-step guide for home buying Canada, which the organization has dubbed the “roadmap” to home ownership.

The 27-page guide, Homebuying Step By Step is available on CMHC’s website. This guide is a manual for homeownership, breaking down the phases potential buyers will need to consider when looking to get into the housing market.

what homebuyers should know

This guide focuses on preparation being the key to homeownership success, and touches on many things for homeowners to keep in mind. A few good guidelines when considering purchasing a home, including debt management, necessary documents, pre-approval, and more!

DEBT-TO-INCOME RATIO

According to the CMHC, a homebuyer’s monthly housing costs should never exceed 32 percent of their average gross monthly income. This includes monthly mortgage payments, property taxes, condo fees and heating expenses. It is also recommended that a family’s debt load, such as car loans and credit card payments, should never exceed 40 percent of the average monthly income. While this recommendation may be somewhat conservative, remaining within these guidelines will ensure that you will be able to afford your debts, while maintaining future financial stability.

NECESSARY DOCUMENTS

This guide also includes a segment regarding the documents a home buyer will need for a mortgage. When you meet with your lender or mortgage broker it is recommended that you have these documents handy, which include things like personal identification, proof of a down payment, proof of income, proof of savings and investments and details of current debt.

MORTGAGE PRE-APPROVAL

CMHC also recommends that people get pre-approved for a mortgage before they start looking for a home. Getting pre-approved can prevent future roadblocks when you find your dream home, and ensures that subject-to-financing clauses won’t be an issue. It also guarantees the rate for up to 120 days, so that you can access the best mortgage once you’ve found the right home.

SOURCES FOR A MORTGAGE

This guide also discusses the various sources for mortgages, which include: banks, trust companies, credit unions and pension funds. As always, it is recommended that you shop around before you make a decision. Hiring a mortgage broker is another great resource, as they are able to access rates for more than one lender. The guide advises asking real estate agents, friends or family members for recommendations on a lender or broker.

Along with the above, this guide also details information about your credit score, mortgage loan insurance, home considerations, the mortgage process and home management. There are also very detailed financial calculations, which factor in costs that many new homebuyers might not even think about, such as groceries, dining out and hobbies. In addition, you will find information about:

  • Principles that help buyers determine how much they can safely afford to spend on housing.
  • A list of the upfront and ongoing costs of homeownership.
  • Information on how to prepare for a meeting with a lender or broker.
  • Definitions of key terms to know when buying a home.
  • Explanation of mortgage basics and tips for how to manage your mortgage.
  • Tips on how to maintain your home and protect your investment.

The underlying theme of the guide is to prevent Canadians from getting in over their heads in debt when buying a home. This guide also shows just how far mortgage brokers have come in Canada, with them mentioned alongside banks throughout.

If you are looking to purchase your first home, contact me directly at 250-240-1503 or mayeinarson@dominionlending.ca today for expert advice! It is our job to help find the best mortgage product for YOU.

Published by: DLC Marketing Team

11 Mar

Renewing vs. Refinancing a Mortgage

General

Posted by: May Einarson

With all the financial upheaval in recent months, you may be looking to refinance your mortgage. Here is some great information about refinancing and the benefits of alternative lenders.

RENEWING VS. REFINANCING A MORTGAGE

What’s the difference between refinancing and renewing your mortgage? The terms are often used interchangeably, but they are different processes:

  • Renewing a mortgage applies to the current mortgage loan. You will be looking for a new term and interest rate based on the amount remaining in your mortgage at the end of your term. This is a great time to look at ways to reduce the principal amount by making a lump sum payment or changing payment amount and frequency.
  • Refinancing a mortgage is a renegotiation of an existing mortgage loan and is usually used to access the equity in the home or take advantage of better mortgage terms. It’s a more involved process than renewing, especially if the loan amount is changing because it is essentially a new mortgage.

    REASONS TO REFINANCE A MORTGAGE

    There are many reasons you may wish to refinance your mortgage. For example:

    • You may be in the middle of a higher interest term and want to take advantage of a lower rate. Although there may be prepayment penalties to get out of the current mortgage, it might be worth it for the long-term savings of a lower rate. Your mortgage broker can help you weigh the options.
    • If you have a lot of high-interest debt, you may wish to refinance and consolidate your debt into a single payment at a lower rate.
    • You may wish to access the equity in your home to fund a renovation, purchase a second property, or invest.

 

PROS AND CONS OF REFINANCING A MORTGAGE

There are advantages and disadvantages to refinancing a mortgage. What you consider a benefit depends on your situation. Here are some things to consider:

Additional costs of refinancing

When you refinance your mortgage, there may be some additional fees to keep in mind. Depending on how close you are to the end of your mortgage term, there might be penalties for paying out your term early. Your lender may also require you to get an appraisal on your home because the amount they will refinance is based on the current appraised value.

Peace of mind from refinancing

Finances can be a major stressor and removing financial pressure is priceless. Consolidating debt into a single monthly payment has its benefits. You’ll likely spend less of your monthly budget on debt payments, and you won’t be juggling your money trying to pay down multiple debts (which may pay more toward interest than principal). That said, if you can’t manage your debt payments now, and you’ll be paying roughly the same with the new mortgage, you’re putting your home at risk.

New interest rate on a refinanced mortgage

When you refinance, you’ll be doing so at current interest rates. Are they higher or lower than what you have now? Sometimes it’s worth breaking your current mortgage term because the interest savings will more than cover the pre- payment penalties. Even a slightly higher rate might be okay if you’re consolidating a lot of high-interest debt. Either way, do the math with an experienced mortgage broker who can help you weigh your options.

Longer amortization

Refinancing may mean you’re stretching out your amortization to keep the payments affordable. Before you commit, look at your entire financial picture. For example, will it affect your retirement?

Requalifying for a refinanced mortgage

Refinancing your mortgage to incorporate debt means you’ll need to qualify for the new mortgage amount. If your circumstances have changed and you don’t think you’d qualify with a traditional lender, talk to your mortgage broker about alternative lenders.

Alternative lenders are refinance experts and will work directly with your broker to understand the story behind the refinance and find a solution. They are more willing to consider self-employment and non-traditional sources of income, and they are also a little more flexible with debt ratios.

HOW MUCH CAN YOU BORROW AGAINST THE EQUITY IN YOUR HOME

Generally, the amount you can borrow is 80% of the appraised value of your home. This is the current market value, not the amount you paid when you purchased it.

The formula is:

(Value of home x 0.80) – Remaining mortgage amount – Loans secured against home = Home equity

• Multiply the value of your home by 80% (0.80).
• Subtract the amount remaining on your mortgage.
• Subtract any other loans you have secured against your home, such as a line of credit. The amount remaining is the equity you have in your home.

 

For example, if your home is valued at $400,000 today, multiply that amount by 0.80 to get $320,000. Now if you have $150,000 left to pay on your mortgage, subtract that to get $170,000. Now let’s say you have an RV or car loan for $20,000 secured against your home. That gives you $150,000 of equity in your home.

($400,000 x 0.80) – $150,000 – $20,000 = $150,000

REFINANCING A MORTGAGE IS NOT A HELOC

You might be wondering, “Why not just get a home equity line of credit (HELOC) instead of refinancing?” You could, but there are some advantages to refinancing.

  • Both options will give you access to the same amount of equity in your home.
  • Both options will likely require an appraisal and take about the same amount of paperwork.
  • Refinancing will probably give you access to the money at a lower interest rate.
  • Refinancing gives you access to the funds one time. A HELOC allows you to borrow, pay back, and borrow again. If you’re borrowing to consolidate debt, you might be better served by refinancing so that your only option is to repay it (and not re-spend it).

    WORK WITH YOUR MORTGAGE BROKER TO FIND YOUR BEST OPTIONS

    Refinancing your mortgage is not as simple as visiting your bank. You should view it as though you are shopping around for a mortgage.

    This is when you are well served by the expertise of a mortgage broker. First, they’ll do the legwork to find you the best rate you qualify for. They have relationships with both traditional banks and alternative lenders, which opens more options for terms and rates. A mortgage broker will also consider your immediate needs and your long-term goals when helping you select a mortgage. They are in your corner.

Published by Bridgewater Bank