There are many reasons why you might want to refinance your existing mortgage. You could choose to payout debts, finance improvements to your home, travel or send your children to university for example. Perhaps you want to switch to a new lender who will give you a more favorable rate. Here's what you need to know:
Consolidating debt: Payments from household bills, credit cards, car loans and line of credits can add up quickly and become overwhelming. Consolidating your debt uses the equity in your home to simplify multiple overwhelming payments into one mortgage payment. Usually household bills and credit card debt are charged a higher interest rate than that of a mortgage. Consolidating debt can reduce your monthly interest costs significantly and get you back on the right financial track.
Renovations & home improvements: If you want to spend a significant amount of money on improving your home, you may be able to take out a lot more equity than you realized! I can advise you through this process. All three insurers — AIG, Genworth and CMHC, will insure new mortgages which are "topped up" for this purpose, and the total of your current mortgage and the new funds exceeds 80% of the current home value. Not all improvements are eligible, however. Pools and spas are typical "over-improvements" which may not qualify for a high-ratio equity take-out. Of course, if the total requirement is less than 80% of your home's current value, you should have little trouble getting the "top up" you need — regardless of the degree of luxury you plan to add.
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Breaking a closed mortgage to transfer to a new lender: Sometimes increasing the amount of your mortgage can result in an identical or lower payment, if you can find a new mortgage with a better rate. Each mortgage is unique in terms of the penalty required to repay a loan early. You will have to ask your financial institution what the early repayment penalty will be for you. Armed with that information, will then look for a product which will better suit your needs, with the rate and options which best match your situation.
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