Refinancing / Renewal
Frequently Asked About Topics:
When your mortgage term is expiring, your existing lender will issue you a renewal offer. This is one of the largest missed opportunities to save money on the lifetime cost of your mortgage borrowing. You are entitled to move your mortgage on its renewal date without incurring a discharge penalty. This is known as a transfer or switch, and many other institutions will cover the cost of switching your mortgage from another lender.
Most people (90+%) typically sign back their renewal offer with their existing lender. The most common reason for these astronomical retention rates is convenience. Although you have to requalify to switch lenders, the 20 minutes of work it requires to gather the relevant documentation can be worth thousands of dollars in interest savings. There are clear advantages to reaching out to a Maple Mortgage Agent before blindly signing a renewal offer from your existing lender:
- The rates offered on renewal are typically higher than the best available rates on the open market, and in many cases are worse rates than what the exact same bank is offering to new clients
- We will assess whether your renewal offer is fair or if there is a lower rate available on the market
- Promotional rebates to cover the costs of a transfer or switch
- If you are renewing before maturity, most of these lenders allow any mortgage penalty amounts to be added back to the mortgage amount so that you are not paying out of pocket
- We can switch your mortgage to a lender with lower discharge penalties if you are anticipating changes in your future
You should never blindly sign a renewal offer back without discussing the offer with a Maple Mortgage Professional.
If you have an existing mortgage and you want to increase the mortgage amount to access the equity in a property, you need to refinance your mortgage. Alternatively, if interest rates have dropped meaningfully during your mortgage term, it may make financial sense to break the mortgage early for the benefit of a lower rate.
The maximum you can refinance a mortgage is up to 80% Loan-to-Value of the property’s appraised value. Refinances are attractive sources of capital for current homeowners due to the favourable rates. There are various reasons somebody would want to refinance their mortgage, including:
- Lowering monthly payments
- Obtaining a lower rate
- Consolidation of high-interest debt
- Finance the cost of improvements or renovations
- Set up a Home Equity Line of Credit (HELOC)
- Investment or purchase of Income Property
- Gifts (ex: gift to children for student loans or down payment)
- Purchase of a secondary home
- Spousal or partner buyout
- Green home and energy efficient upgrades eligible for tax credits
There are times when it makes sense to change your mortgage mid-term. A refinance may represent an opportunity to save money or facilitate cheap access to capital.
If you regularly carry balances on credit cards or other high-interest debt, you may be able to roll that debt into a lower interest mortgage credit facility. Rolling high-interest debt under a mortgage represents a large savings opportunity and can assist in become debt-free faster.
If you have an existing mortgage with more than 20% equity in your home, you may be able to add a second mortgage component (bank-permitting) or refinance your current mortgage. When restructuring your current mortgage, some lenders allow a portion of that mortgage to be in a revolving home equity line of credit. A refinance can be used to lower the interest cost for many homeowners and consequently pay off that debt sooner. Here is an example of a scenario benefitting from a refinance to consolidate their other debts:
Debt consolidation should be part of a long-term debt strategy in concert with a review of the customer’s budget and financial goal planning for the future. It is not our expectation to have to repeatedly provide debt consolidation for a customer. This refinance is intended to assist with cash-flow, interest relief, and advice on budget planning.
Many homeowners will refinance their current mortgage to absorb the cost of renovating and modernizing a home. Refinancing a home to pay for the costs of renovations allows a homeowner to borrow that money at a lower rate than financing improvements to the property through higher interest credit like an unsecured line of credit or credit cards. A homeowner may choose to refinance their home to cover the cost of renovations for several different reasons:
- Modernize an older home in lieu of buying a newly built house
- Increase the value of the property
- Improvements to an older home in advance of listing it for sale
- Green Home and Energy Efficiency upgrades to qualify for rebates
Keep in mind, not all modifications offer a favourable return on investment. Do your research to ensure you are investing in renovations that will retain their value. In these scenarios, we often refer clients to Maple-approved Realtor partners for complimentary advice on what improvements offer the best return on investment.
Some homeowners choose to access the equity in their property for investment purposes. This refinance strategy can assist a current homeowner who is “house rich”. Accessing equity in a property can free up capital for investment to diversify a financial portfolio or improve cash flow. Borrowing money for the purpose of investment is not a risk-free strategy. Consumer leverage should be carefully monitored, and these programs are restricted to credit worthy borrowers.
- Refinancing a house at a lower interest rate than they are realizing in returns from their investments. This strategy can be used as a tax write-off which should be discussed in detail with an accountant prior to applying.
- Refinancing a home for the purchase of a rental property
- Refinancing a home for RRSP or TFSA contributions
- Refinancing a home for a gift to children for student loan relief or a down payment
At Maple, we have a network of partners which allows us to integrate our mortgage planning within a wider financial strategy. We have several preferred partners with extensive investment experience who can advise on successfully growing your investment portfolio.
Reverse mortgages are available to Canadian seniors and pensioners who have significant equity in their primary residence. Reverse mortgages have surged in popularity as seniors are unable to secure a mortgage through traditional income qualification. Canadians who are 55+ can access up to 50% of the value of their home in a reverse mortgage. These reverse mortgages have higher rates than regular mortgages, however the homeowner is not required to make a payment. Reverse mortgages need to be carefully administered, however do present an option for seniors:
- No interest payments – they are added to the balance of the reverse mortgage and due upon sale of the property, repayment, or estate sale
- Equity draws are not considered taxable income and do not impact any social pension benefits
- Draws can be reserved to subsidize large bills for seniors on fixed income
- Access to equity to support lifestyle for seniors with limited pension or RRSP income