Refinancing a mortgage involves renegotiating one’s current mortgage loan agreement. Whether one enters a new mortgage agreement with the same lender or with a different lender, the goal of a mortgage refinance is to benefit the homeowner. For the purposes of this blog post, we will be discussing mortgage refinancing under the scope of institutional mortgage lending.
Institutional mortgage lenders can be divided into two categories: A-Lenders and B-Lenders. A-Lenders, also referred to as ‘prime’ mortgage lenders, are comprised of the major Canadian banks: TD, CIBC, BMO, RBC, Scotiabank, and National Bank. These banks, as well as a select few other lenders, provide the best interest mortgage rates and terms in the market. Because of their rates, they have the strictest lending requirements. Generally, the A-Lenders only accept applicants who exemplify the highest level of financial stability and lowest level of risk. Thus, to be approved, an applicant must pass a mortgage stress test. Comparatively, B-Lenders offer more flexibility in their lending requirements but can still provide homeowners with a good lending rate. Examples of B-Lenders in Canada include: Home Trust, First National, MCAP, and RFA.
Why might someone refinance their mortgage? There are a few pros a mortgage refinance can provide:
- Obtain a lower interest rate
Depending on the pre-payment penalty and the size of the outstanding mortgage, refinancing, and obtaining a lower interest rate can potentially save you money over time.
- Accessing equity of the home
Refinancing allows homeowners to access up to 80% of their home’s value, less the value of the mortgage.
- Consolidate debt
Using the accessed equity, homeowners can use their built-up equity to pay any outstanding high-interest debts, consolidating their debt through the mortgage refinance options available.
Although there are benefits to refinancing, there are some risks that should be taken into consideration. First, breaking a mortgage and entering a new one lengthens the time to pay off the mortgage of the home. As well, although you may have secured a low overall interest rate, the amount owing on your mortgage may be significantly higher. In addition, the process of refinancing is associated with additional costs, such as a prepayment charge for breaking your mortgage early.
Therefore, due to the many complex aspects of refinancing a mortgage, it may be of interest to reach out to a real estate lawyer. A lawyer will not only help you understand the terms and conditions of your mortgage loan, but they can help you determine if a refinance transaction will benefit you. Real estate lawyers will even facilitate the entire mortgage transaction between you and your lender, ensuring that you are receiving and entering a legitimate offer.
At 6ix Estates LLP, we represent clients in mortgage financing or refinancing transactions, both with institutional and private mortgage lenders. We will meet with all borrowers before closing to review the entire transaction, sign the documents and arrange for funds.
Contact us today for a free, 30-minute, no obligation consultation.