If you have a residential home mortgage and are thinking about a Toronto home refinancing action, there are a couple of schools of thought to consider, depending on why you’re looking to refinance in the first place.
While there may be many potential reasons for refinancing, I can stick most reasons into one of two buckets.
The first bucket is an immediate short term need to consolidate debt and/or generate incremental cash flow.
The second bucket is about the desire to try and reduce the cost of interest you’re paying on your mortgage.
The process of refinancing needs to consider two groups of costs and their related cash flow considerations. The first group includes the costs related to retiring the existing mortgage.
The second group of costs is the go forward cost of the new mortgage with respect to interest costs, insurance costs, etc.
Home mortgage refinance on a variable mortgage could significantly minimize the group one costs as there will not be any prepayment penalty associated with repaying the old mortgage with a new one.
With a fixed rate mortgage, the opposite is true with prepayment penalties tending to be the most significant cost item.
If you’re in a situation where you must refinance in the short term, then its all about getting all the pieces lined up for the least amount of cost in the shortest period of time. You can lock in an interest rate for 120 days and try to get the best go forward rate available during that period. You can try to renew the mortgage early with the existing mortgage holder to reduce breakage fees. There may be a few things you can do or consider, but its going to be limited.
For lower interest rate seekers where time is not of the essence, the focus should be more towards understanding the structure of your mortgage with respect to early repayment and/or renew, plus the short term and long term out look for interest rates. The goal is to monitor the market and act quickly when everything lines up in your favor.
This is true of a home equity loan, insured mortgages, a rental property mortgage, and so on.
The world events in Libya and Japan in recent weeks remind us of how potentially volatile the financial markets can be and how major events that we did not expect can potentially change both our short term and long term out looks for things like mortgage interest rates that are tied closely to the economy and the financial money markets.
And while there is way to predict when world events, good or bad, or going to happen or how they will influence rates, recent history shows that while interest rates in general may trend in a certain direction, there are always short turn changes in direction that can be beneficial to those that recognize them and take action at the appropriate time.
By understanding the process of home refinancing, and taking action when the market moves in your favor, you’re more likely to create a benefit for yourself.
Regardless of whether or not you need to refinance right away or have time on your side, understanding the process and making good decisions based on the available information is going to be important for best results. To accomplish this, we strongly recommend that you work with an experienced mortgage broker who can guide you though all the information that’s relevant to your situation and help you get the best deal in place when you need to take action.