In this article, we will look at the nuances of mortgage renewal vs. refinance. Now that bank rates have risen, many Canadians are wondering how best to deal with mortgages. Therefore, it is extremely important to understand what mortgage refinance is and how to extend the repayment period to your advantage.
What is Mortgage Refinancing?
Mortgage refinancing is lending on more favorable terms. With its help, it is possible to reduce the interest rate, extend the maturity, and also change the amount of the monthly payment. As a rule, this option comes with the following conditions:
- The interest rate is lower for the entire loan term or the period specified in the agreement.
- Reduced monthly payments and total debt.
- The ability to consolidate the main debt and pay off part of the loan with high-interest rates.
- The funds are not issued to the borrower but immediately go to pay the current debt.
- There are restrictions on the term of the current loan subject to refinancing.
- The borrower should not have any delinquencies on current loans.
- Mortgage refinancing in Canada is available at any bank.
Please note: It makes sense to refinance your mortgage when the difference between the rates is at least 0.5%.
Refinancing can be convenient not only in a difficult financial situation but also in the case of significant fluctuations in the financial services market. Monitoring and analyzing the state of your finances will allow you to react promptly to changes in lending rates.
What You Need to Know About Renewing a Mortgage
Renewing a mortgage has several important differences from the refinancing procedure. Any bank is ready to meet the client and issue the mortgage renewal procedure with more loyal conditions. If we compare mortgage renewal vs. refinance, then we can highlight several key points:
- During the renewal of a mortgage in Canada, the borrower can apply to the bank for prolongation, even if the term has come to an end and the principal is still not paid.
- The procedure can be repeated several times during the term of the loan.
- Lenders regularly notify their borrowers about the new rate and term of the mortgage.
Before deciding to prolong the mortgage, several factors must be taken into account:
- the remaining loan repayment period;
- the principal amount of debt;
- interest rate;
- regularity of payments.
After doing the proper calculations, you will be able to make a decision – whether to sign an agreement on the extension of the mortgage or not. The most important point in this matter is the analysis of the current monetary state of the family. If the new financial obligations do not become a burden, then renewal may be the best solution.
Please note: the conditions for the prolongation of the mortgage and the procedure for its registration are always prescribed in the loan agreement. Often, this requires paying a commission or depositing the amount of interest for the payment period.
Mortgage Renewal vs Refinance: Which Option to Choose?
If you have a mortgage, and there have been significant changes in your life, then you might want to compare mortgage renewal vs. refinance. Considering the benefits of these procedures, it is obvious that both the borrower and the bank can win.
Consider the following factors when deciding:
- Are you comfortable with current payments?
- Do you want to switch from a temporary to a fixed rate or not?
- Will you be able to pay new payments when the terms of the agreement are changed?
- Are you ready to extend the term of the mortgage?
This is important: in a difficult situation, consultation with a specialist in mortgage lending will help. This person will be able to explain the nuances of mortgage renewal vs. refinance in a more understandable language and help you make the right choice.